<PAGE> 1
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED APRIL 16, 1999
$317,258,887.13
MELLON AUTO GRANTOR TRUST 1999-1
ISSUER
MELLON AUTO RECEIVABLES CORPORATION
DEPOSITOR
MELLON BANK, N.A.
SERVICER
CERTIFICATES OFFERED
- - $307,741,000.00, 5.46% Class A
certificates
- - $ 9,517,887.13, 5.76% Class B
certificates
ASSETS
- - Retail automobile receivables
CREDIT ENHANCEMENT
- - Class A certificates
- subordination of Class B
certificates
- reserve account
- - Class B certificates
- reserve account
EXPECTED RATINGS
- - AAA from S&P and Aaa from Moody's
for the Class A certificates
- - A+ from S&P and A3 from Moody's
for the Class B certificates
You should carefully consider
the risk factors beginning on
page S-6 in this prospectus
supplement and on page 2 of the
prospectus.
The certificates are
obligations only of the trust.
Neither the certificates nor
the receivables are guaranteed
by any person.
The certificates are not bank
deposits.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the attached prospectus is accurate or complete. Making
any contrary representation is a criminal offense.
Subject to the satisfaction of certain conditions, the underwriters named
below are offering the Class A certificates and Class B certificates at the
price to public shown. The certificates will be delivered in book entry form
only on or about April 29, 1999.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS
PRICE TO AND PROCEEDS TO
PUBLIC(1) COMMISSIONS THE DEPOSITOR(1)(2)
--------------- ------------ --------------------
<S> <C> <C> <C>
Per Class A Certificate....................... 99.990442% .245% 99.745442%
Per Class B Certificate....................... 99.986305% .412% 99.574305%
Total......................................... $317,228,169.77 $793,179.14 $316,434,990.63
</TABLE>
- ---------------
(1) Plus accrued interest from April 15, 1999.
(2) Before deducting expenses, estimated to be $550,000.
CHASE SECURITIES INC. MELLON FINANCIAL MARKETS, INC.
The date of this prospectus supplement is April 21, 1999.
<PAGE> 2
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS SUPPLEMENT
AND THE ACCOMPANYING PROSPECTUS.
We provide information to you about the certificates in two separate
documents that provide progressively more detail:
- the accompanying prospectus, which provides general information, some of
which may not apply to your series of certificates; and
- this prospectus supplement, which describes the specific terms of your
series of certificates.
YOU SHOULD RELY PRIMARILY ON THE DESCRIPTION OF YOUR SECURITIES IN THIS
PROSPECTUS SUPPLEMENT.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT
CAPTION PAGE
- ------------------------------------- ----
<S> <C>
Summary of Terms..................... S-3
Risk Factors......................... S-6
Formation of the Trust............... S-8
The Trust Property................... S-9
The Receivables Pool................. S-10
The Servicer......................... S-14
Weighted Average Life of
the Certificates................... S-19
Use of Proceeds...................... S-23
Description of the Certificates...... S-23
Federal Income Tax Consequences...... S-35
State and Local Tax Consequences..... S-38
ERISA Considerations................. S-38
Underwriting......................... S-42
Ratings.............................. S-43
Legal Matters........................ S-44
</TABLE>
<TABLE>
<CAPTION>
CAPTION PAGE
- ------------------------------------- ----
PROSPECTUS
<S> <C>
Risk Factors......................... 2
Incorporation of Certain Documents by
Reference.......................... 6
The Trusts........................... 7
The Portfolio of Motor Vehicle
Loans.............................. 9
The Receivables Pools................ 13
Maturity and Prepayment
Assumptions........................ 14
Pool Factors and Trading
Information........................ 17
Use of Proceeds...................... 17
The Depositor........................ 17
The Servicer......................... 19
Description of the Notes............. 19
Description of the Certificates...... 27
Certain Information Regarding the
Securities......................... 28
Description of the Transfer and
Servicing Agreements............... 43
Certain Legal Aspects of the
Receivables........................ 60
Federal Income Tax Consequences...... 66
Trust Characterized as Partnerships
or Divisions....................... 67
Trusts Treated as Grantor Trusts..... 75
FASIT Legislation.................... 83
State and Local Tax Consequences..... 84
ERISA Considerations................. 84
Ratings.............................. 89
Method of Distribution............... 89
Legal Opinions....................... 90
Index of Terms....................... 91
Annex I.............................. 94
</TABLE>
S-2
<PAGE> 3
SUMMARY OF TERMS
This section outlines the significant terms of the offered certificates. As
a summary, we do not attempt to discuss or describe in any detail the terms
outlined here. We recommend that you review carefully the more detailed
information in this prospectus supplement and in the attached prospectus.
ISSUER........................... Mellon Auto Grantor Trust 1999-1.
DEPOSITOR........................ Mellon Auto Receivables Corporation.
SERVICER......................... Mellon Bank, N.A.
SELLER........................... Mellon Bank, N.A.
TRUSTEE.......................... Norwest Bank Minnesota, National
Association.
COLLATERAL AGENT................. The Chase Manhattan Bank.
CLOSING DATE..................... On or about April 29, 1999.
CUTOFF DATE...................... The opening of business on April 1, 1999.
DISTRIBUTION DATES............... The 15th day of each month or the next
business day if the 15th day is not a
business day, beginning in May 1999.
RECORD DATES..................... The business day immediately prior to a
distribution date or, if definitive
certificates are issued, the last day of
the month prior to a distribution date.
MINIMUM DENOMINATIONS............ $25,000 except for one Class B certificate.
FORM............................. Book-entry.
INTEREST ACCRUAL METHOD.......... 30/360.
FINAL SCHEDULED DISTRIBUTION
DATE............................. October 17, 2005.
S-3
<PAGE> 4
THE RECEIVABLES
The receivables are amounts owed by individuals under fixed rate simple interest
retail installment sale contracts to purchase or refinance new or used
automobiles, including passenger cars, minivans, sport utility vehicles and
light trucks, substantially all of which were purchased from motor vehicle
dealers.
The receivables had the following characteristics as of April 1, 1999. As of the
closing date, no more than 5% of the receivables will have characteristics that
differ from those described in this prospectus supplement as of April 1, 1999.
Number of receivables.....................................................24,587
Principal amount.................................................$317,258,887.13
Annual percentage rates..........................................6.55% to 17.00%
Weighted average annual percentage rate....................................9.21%
Original term.............................................12 months to 72 months
Weighted average original term.......................................59.9 months
Remaining term..............................................1 month to 72 months
Weighted average remaining term......................................52.3 months
New by principal..........................................................53.46%
Used by principal.........................................................46.54%
States
PA by principal.........................................................85.26%
DE by principal..........................................................7.97%
INTEREST DISTRIBUTIONS
On each distribution date, if the trust has sufficient cash, it will pay you the
interest accrued on your certificates during the related interest period. The
trust will not pay interest on the Class B certificates on any distribution date
until the Class A certificateholders have received their full payment of
interest on that distribution date. Interest periods begin on the prior
distribution date and run through the day before the current distribution date.
The first interest period begins on April 15, 1999 and runs through the day
before the first distribution date. We will assume that each year has 360 days
consisting of twelve 30 day months.
PRINCIPAL DISTRIBUTIONS
The Class A certificates and Class B certificates will be entitled to a pro rata
share of the principal collections. However, the trust will make principal
distributions to the Class A certificates before making principal distributions
to the Class B certificates on each distribution date.
RESERVE ACCOUNT
There will be a reserve account to help cover cash flow shortfalls. Initially,
the account will be $4,758,883.31. On each distribution date amounts remaining
after distribution of the servicing fee and amounts to be paid to the
certificateholders will be deposited in the reserve account until the amount
equals a specified amount.
OPTIONAL TERMINATION
When the principal amount of the receivables is 10% or less than it was on the
cutoff date, the servicer may buy the receivables. You must receive the
principal amount of your certificates and all accrued but unpaid interest or the
receivables will not be sold.
S-4
<PAGE> 5
FEDERAL TAX CONSEQUENCES
Stroock & Stroock & Lavan LLP, special federal tax counsel to the trust, is of
the opinion that the trust will be classified, for federal income tax purposes,
as a grantor trust and not as an association taxable as a corporation.
Certificateholders must report their respective allocable shares of income
earned on trust assets excluding certain amounts retained by the depositor as
described herein and, subject to certain limitations applicable to individuals,
estates, trusts and partnerships, may deduct their respective allocable shares
of reasonable servicing and other fees. However, the tax code is complex, and we
recommend that you and your tax advisors review the information under the
caption "Federal Income Tax Consequences" in this prospectus supplement and the
prospectus.
ERISA CONSIDERATIONS
The Class A certificates may be purchased by ERISA and other retirement plans if
one or more administrative exemptions apply. No Class B certificate may be
purchased by ERISA or other retirement plans other than "an insurance company
general account." See "ERISA Considerations" in this prospectus supplement and
the prospectus.
S-5
<PAGE> 6
RISK FACTORS
An investment in the certificates involves significant risks. Before you
decide to invest, we recommend that you carefully consider the following risk
factors and the risk factors specified under the heading "Risk Factors"
beginning on page 2 of the prospectus.
YOU MAY HAVE DIFFICULTY SELLING YOUR CERTIFICATES
The certificates will not be listed on any securities exchange. As a
result, if you want to sell your certificates you must locate a purchaser that
is willing to purchase those certificates. Each underwriter intends to make a
secondary market for the certificates purchased by it. The underwriters will do
so by offering to buy the certificates from investors that wish to sell.
However, neither underwriter will be obligated to make offers to buy the
certificates and may stop making offers at any time. In addition, the prices
offered, if any, may not reflect prices that other potential purchasers, were
they to be given the opportunity, would be willing to pay. There have been times
in the past where there have been very few buyers of asset backed securities,
and there may be such times in the future. As a result, you may not be able to
sell your certificates when you want to do so or you may not be able to obtain
the price that you wish to receive.
CERTAIN FEATURES OF THE RECEIVABLES POOL MAY RESULT IN LOSSES OR CASH FLOW
SHORTFALLS
There are a number of features of the receivables in the pool that create
additional risk of loss, including the following:
- THE CONCENTRATION OF RECEIVABLES IN SPECIFIC GEOGRAPHIC AREAS MAY
INCREASE THE RISK OF LOSS. Economic conditions in the states
where obligors reside may affect the delinquency, loan loss and
repossession experience of the trust with respect to the
receivables. As of the cutoff date, the billing addresses of the
obligors with respect to approximately 85.26% and 7.97% of the
principal amount of the receivables were located in Pennsylvania
and Delaware, respectively. Economic conditions in any state or
region may decline over time and from time to time. Because of the
concentration of the obligors in certain states, any adverse
economic conditions in those states may have a greater effect on
the performance of the certificates than if the concentration did
not exist.
We are not aware of any adverse economic conditions that are
peculiar to Pennsylvania or Delaware as of the date of this
prospectus supplement. In addition, we do not believe that the
laws of those states relating to motor vehicle financing and the
rights of lenders are more burdensome than those in other states.
- NEWLY ORIGINATED LOANS MAY BE MORE LIKELY TO DEFAULT WHICH MAY CAUSE
LOSSES. Defaults on automobile loans tend to occur at higher rates
during the early years of the automobile loans. A substantial
majority of the automobile loans will have been originated within
12 months prior to the sale to the trust. As
S-6
<PAGE> 7
a result, the trust may experience higher rates of default than if
the automobile loans had been outstanding for a longer period of
time.
CLASS B CERTIFICATES WILL ABSORB CASH SHORTFALLS BEFORE THE CLASS A CERTIFICATES
The Class B certificateholders will not receive any distribution of
interest until the full amount of interest on the Class A certificates has been
paid on each distribution date. The Class B certificateholders will not receive
any distributions of principal until the full amount of principal of the Class A
certificates has been paid on that distribution date. Holders of the
certificates must rely for repayment upon payments on the receivables, and, if
and to the extent available, amounts on deposit in the reserve account. If funds
in the reserve account are exhausted, the trust will depend solely on current
distributions on the receivables to make payments on the certificates.
Delinquent payments on the receivables may result in a shortfall in the
distributions on the Class B certificates on any distribution date due to the
priority of payments on the Class A certificates.
YOUR YIELD TO MATURITY MAY BE REDUCED BY PREPAYMENTS, DELINQUENCIES AND DEFAULTS
The pre-tax yield to maturity on your investment is uncertain and will
depend on a number of factors including the following:
- THE RATE OF RETURN OF PRINCIPAL IS UNCERTAIN. The amount of
distributions of principal of the certificates and the time when
you receive those distributions depends on the amount and the
times at which borrowers make principal payments on the
receivables. Those principal payments may be regularly scheduled
payments or unscheduled payments resulting from prepayments or
defaults of the receivables.
- YOU MAY BE UNABLE TO REINVEST DISTRIBUTIONS IN COMPARABLE
INVESTMENTS. Asset backed securities, like the certificates,
usually produce more returns of principal to investors when market
interest rates fall below the interest rates on the receivables
and produce less returns of principal when market interest rates
are above the interest rates on the receivables. As a result, you
are likely to receive more money to reinvest at a time when other
investments generally are producing a lower yield than that on the
certificates, and are likely to receive less money to reinvest
when other investments generally are producing a higher yield than
that on the certificates. You will bear the risk that the timing
and amount of distributions on your certificates will prevent you
from attaining your desired yield.
- AN EARLY TERMINATION WILL SHORTEN THE LIFE OF YOUR INVESTMENT WHICH MAY
REDUCE YOUR YIELD TO MATURITY. If the receivables are sold upon
exercise of the servicer's optional termination, you will receive
the principal amount of your certificates plus accrued interest
through the related interest period. Because your certificates
will no longer be outstanding, you will not receive the additional
interest payments that you would have received had the
certificates remained outstanding. If you bought your securities
at par or at a premium,
S-7
<PAGE> 8
your yield to maturity will be lower than it would have been if
the optional termination had not been exercised.
WITHDRAWAL OR DOWNGRADING OF INITIAL RATINGS WILL REDUCE THE PRICES FOR
CERTIFICATES
A security rating is not a recommendation to buy, sell or hold securities.
Similar ratings on different types of securities do not necessarily mean the
same thing. We recommend that you analyze the significance of each rating
independently from any other rating. Any rating agency may change its rating of
the certificates after those certificates are issued if that rating agency
believes that circumstances have changed. Any subsequent withdrawal or downgrade
in rating will likely reduce the price that a subsequent purchaser will be
willing to pay for the certificates.
COMPUTER PROBLEMS IN THE YEAR 2000 MAY RESULT IN LOSSES
Many computers and computer chips were not programmed to recognize more
than two digits in a year of a date. As a result, in the year 2000, those
computers will not know whether the '00 refers to the year 1900 or the year
2000. Mellon Bank Corporation, the parent corporation of the servicer, has taken
actions as described under "The Servicer" in this prospectus supplement with a
goal of addressing and correcting this problem. To the extent that such systems
of the servicer have such problems in the year 2000 and later, the amount and
timing of distributions to certificateholders could be adversely affected.
CLASS B CERTIFICATEHOLDERS MAY HAVE TO PAY TAXES ON AMOUNTS NOT ACTUALLY
RECEIVED
For federal income tax purposes, amounts otherwise payable to the owners of
the Class B certificates that are paid to the owners of the Class A certificates
will be deemed to have been received by the owners of the Class B certificates
and then paid by them to the owners of the Class A certificates pursuant to a
guaranty. Accordingly, the owners of the Class B certificates could be liable
for taxes on amounts not actually received. See "Federal Income Tax
Consequences" in this prospectus supplement and "Federal Income Tax
Consequences -- Trusts Treated as Grantor Trusts" in the prospectus.
THE CERTIFICATES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS
The certificates are not a suitable investment for any investor that
requires a regular or predictable schedule of payments or payment on any
specific date. The certificates are complex investments that should be
considered only by investors who, either alone or with their financial, tax and
legal advisors, have the expertise to analyze the prepayment, reinvestment,
default and market risk, the tax consequences of an investment, and the
interaction of these factors.
FORMATION OF THE TRUST
Pursuant to a pooling and servicing agreement (as amended and supplemented,
the "AGREEMENT"), to be dated as of April 1, 1999 (the "CUTOFF DATE"), among
Mellon Auto Receivables Corporation, as depositor (the "DEPOSITOR"), Mellon
Bank, N.A., as seller (in such capacity, the "SELLER") and as servicer (in such
capacity, the "SERVICER"), Norwest
S-8
<PAGE> 9
Bank Minnesota, National Association, as trustee (the "TRUSTEE"), and The Chase
Manhattan Bank, as collateral agent (the "COLLATERAL AGENT"), the Depositor will
establish Mellon Auto Grantor Trust 1999-1 (the "TRUST"). Pursuant to the
Agreement, the Depositor will establish the Trust by selling and assigning a
pool of fixed rate simple interest motor vehicle retail installment sales
contracts and other motor vehicle installment chattel paper (the "RECEIVABLES")
secured by new and used automobiles, including passenger cars, minivans, sport
utility vehicles, and light trucks (the "FINANCED VEHICLES") and the other Trust
Property, as described below under "The Trust Property" to the Trust in exchange
for the $307,741,000.00, 5.46% Class A certificates (the "CLASS A CERTIFICATES")
and the $9,517,887.13, 5.76% Class B certificates (the "CLASS B CERTIFICATES,"
and, together with the Class A Certificates, the "CERTIFICATES"). The Depositor
will sell the Certificates to Chase Securities Inc. and Mellon Financial
Markets, Inc. (together, the "UNDERWRITERS") in exchange for cash. All
references herein to sales, assignments and transfers to the Trust refer to
sales, assignments and transfers to the Trustee on behalf of the Trust for the
benefit of the holders of the Certificates (the "CERTIFICATEHOLDERS"). Prior to
such sale and assignment, the Trust will have no assets or obligations or any
operating history. Upon formation, the Trust will not engage in any business
activities other than acquiring and holding the Receivables, issuing the
Certificates and distributing payments thereon.
The Servicer will, directly or through subservicers, hold the Receivables
and the certificates of title or ownership or other documents evidencing the
notation of the Seller's lien on the certificates of title or ownership relating
to the Financed Vehicles as custodian for the Trustee. However, the Receivables
will not be marked or stamped to indicate that they have been sold to the Trust,
and the certificates of title for the Financed Vehicles will not be endorsed or
otherwise amended to identify the Trustee as the new secured party. Under the
foregoing circumstances and in certain jurisdictions, the Trust's interest in
the Receivables and the Financed Vehicles may be defeated. See "Risk
Factors -- The trust's security interest in the financed vehicles will not be
noted on the certificates of title which may cause losses" and "Certain Legal
Aspects of the Receivables" in the Prospectus.
The Trust will not acquire any contracts or assets other than the Trust
Property, and it is not anticipated that the Trust will have any need for
additional capital resources. Because the Trust will have no operating history
upon its establishment and will not engage in any business activity other than
acquiring and holding the Trust Property, issuing the Certificates and
distributing payments thereon, no historical or pro forma financial statements
or ratios of earnings to fixed charges with respect to the Trust have been
included herein.
THE TRUST PROPERTY
Each Certificate represents a fractional undivided interest in the Trust.
The "TRUST PROPERTY" will include the Receivables, which, except as provided
below, were originated indirectly by motor vehicle dealers (the "DEALERS") and
purchased by the Seller pursuant to agreements with Dealers ("DEALER
AGREEMENTS"). Approximately 5.1% of the aggregate Principal Balance of the
Receivables as of the Cutoff Date (the "INITIAL POOL BALANCE")
S-9
<PAGE> 10
were directly originated by the Seller in connection with referrals from an
insurance company. On the date of the issuance of the Certificates (the "CLOSING
DATE"), the Depositor will buy the Receivables from the Seller and the Depositor
will sell the Receivables to the Trust. The Trust Property also includes:
- all monies received under the Receivables on and after the Cutoff Date;
- such amounts as from time to time may be held in the Collection Account,
the Class A Distribution Account and the Class B Distribution Account,
established and maintained by the Servicer pursuant to the Agreement as
described below;
- security interests in the Financed Vehicles;
- the rights of the Seller to receive proceeds from claims under certain
insurance policies;
- the rights of the Trustee on behalf of the Certificateholders under the
Agreement;
- the rights of the Seller to refunds for the costs of extended service
contracts and to refunds of unearned premiums with respect to credit life
and credit accident and health insurance policies covering the Financed
Vehicles or the retail purchasers of, or other persons owing payments on,
the Financed Vehicles (the "OBLIGORS");
- all right, title and interest of the Seller (other than with respect to
any Dealer commission) with respect to the Receivables under the related
Dealer Agreements;
- rights with respect to any repossessed Financed Vehicles; and
- all proceeds (within the meaning of the Uniform Commercial Code (the
"UCC")) of the foregoing.
The Reserve Account will be maintained in the name of the Collateral Agent
for the benefit of the Certificateholders, but will not be part of the Trust.
THE RECEIVABLES POOL
POOL COMPOSITION
The Receivables were selected from the Seller's portfolio by several
criteria, including, as of the Cutoff Date, the following:
1. each Receivable was originated in the United States of America;
2. each Receivable was originated indirectly by a Dealer and purchased
by the Seller pursuant to a Dealer Agreement; provided, that approximately
5.1% of the Initial Pool Balance was comprised of Receivables originated
directly by the Seller in connection with referrals from an insurance
company;
3. each Receivable is a Simple Interest Receivable;
4. each Receivable has an original term to maturity of not more than 72
months and a remaining term to maturity of 72 months or less as of the
Cutoff Date;
5. each Receivable provides for level monthly payments which fully
amortize the amount financed except for the last payment, which may be
different from the level payment;
S-10
<PAGE> 11
6. each Receivable is not more than 30 days contractually past due as
of the Cutoff Date and is not more than 48 months paid ahead; and
7. each Receivable has an APR of no less than 6.55%.
As of the Cutoff Date, no Obligor on any Receivable was noted in the
records of the Servicer as being the subject of any pending bankruptcy or
insolvency proceeding. The latest scheduled maturity of any Receivable is not
later than March 31, 2005 (the "FINAL SCHEDULED MATURITY DATE"). The Receivables
were selected from the motor vehicle retail installment sales contracts and
other installment chattel paper secured by Financed Vehicles ("MOTOR VEHICLE
LOANS") in the portfolio of the Seller that met the above criteria. For
administrative reasons, the Seller selected from the Motor Vehicle Loans in its
portfolio all otherwise eligible Motor Vehicle Loans originated between January
1, 1997 and February 28, 1999, which were segregated by the Seller. The
Depositor and the Seller believe that such selection procedures are not
materially adverse to Certificateholders.
The Depositor considers an account past due if any portion of the payment
due on a due date is not received by the succeeding due date for that account.
The composition, distribution by remaining term, distribution by APR,
geographic distribution and distribution by remaining principal of the
Receivables, in each case, as of the Cutoff Date are set forth in the tables
below. The percentages in the following tables may not add to 100% due to
rounding.
COMPOSITION OF THE RECEIVABLES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
NEW FINANCED USED FINANCED
VEHICLES VEHICLES TOTAL
---------------- ---------------- ----------------
<S> <C> <C> <C>
Aggregate Principal Balance............ $169,601,389.76 $147,657,497.37 $317,258,887.13
Number of Receivables.................. 10,728 13,859 24,587
Average Principal Balance.............. $15,809.23 $10,654.27 $12,903.52
Average Original Balance............... $22,182.93 $15,624.23 $18,485.98
Weighted Average APR................... 8.67% 9.83% 9.21%
APR (Range)............................ 6.55%-12.85% 6.55%-17.00% 6.55%-17.00%
Weighted Average Original Term......... 62.0 months 57.4 months 59.9 months
Original Term (Range).................. 12 to 72 months 12 to 72 months 12 to 72 months
Weighted Average Remaining Term........ 54.8 months 49.3 months 52.3 months
Remaining Term (Range)................. 1 to 72 months 1 to 72 months 1 to 72 months
</TABLE>
S-11
<PAGE> 12
DISTRIBUTION BY REMAINING TERM OF THE RECEIVABLES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE
REMAINING NUMBER OF AGGREGATE OF INITIAL
TERM (RANGE) RECEIVABLES PRINCIPAL BALANCE POOL BALANCE
------------ ----------- ----------------- ------------
<S> <C> <C> <C>
1 - 12 months..................................... 338 $ 750,086.51 0.24%
13 - 24 months..................................... 1,361 6,094,787.09 1.92
25 - 36 months..................................... 2,831 21,646,215.68 6.82
37 - 48 months..................................... 5,467 59,989,417.60 18.91
49 - 60 months..................................... 11,599 168,183,924.14 53.01
61 - 72 months..................................... 2,991 60,594,456.11 19.10
------ --------------- ------
Total......................................... 24,587 $317,258,887.13 100.00%
====== =============== ======
</TABLE>
DISTRIBUTION BY ANNUAL PERCENTAGE RATE OF THE RECEIVABLES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE
ANNUAL NUMBER OF AGGREGATE OF INITIAL
PERCENTAGE RATE (RANGE) RECEIVABLES PRINCIPAL BALANCE POOL BALANCE
----------------------- ----------- ----------------- ------------
<S> <C> <C> <C>
6.55% to below 7.00%............................... 458 $ 6,535,850.05 2.06%
7.00% to below 8.00%............................... 3,750 54,007,021.29 17.02
8.00% to below 9.00%............................... 6,766 94,916,711.86 29.92
9.00% to below 10.00%.............................. 6,388 83,787,514.66 26.41
10.00% to below 11.00%............................. 4,408 53,673,847.37 16.92
11.00% to below 12.00%............................. 1,519 16,032,800.67 5.05
12.00% to below 13.00%............................. 829 5,731,572.38 1.81
13.00% to below 14.00%............................. 257 1,548,676.88 0.49
14.00% to below 15.00%............................. 116 576,717.49 0.18
15.00% to below 16.00%............................. 92 434,621.39 0.14
16.00% to below 17.00%............................. 3 9,290.71 0.00
17.00%............................................. 1 4,262.38 0.00
------ --------------- ------
Total......................................... 24,587 $317,258,887.13 100.00%
====== =============== ======
</TABLE>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF AGGREGATE OF INITIAL
STATE(1) RECEIVABLES PRINCIPAL BALANCE POOL BALANCE
-------- ----------- ----------------- ------------
<S> <C> <C> <C>
Pennsylvania....................................... 21,496 $270,489,918.84 85.26%
Delaware........................................... 1,665 25,294,448.93 7.97
Maryland........................................... 695 10,731,109.89 3.38
New Jersey......................................... 283 4,128,707.80 1.30
West Virginia...................................... 156 2,516,144.12 0.79
New York........................................... 119 1,739,626.74 0.55
Others (2)......................................... 173 2,358,930.81 0.74
------ --------------- ------
Total......................................... 24,587 $317,258,887.13 100.00%
====== =============== ======
</TABLE>
- ---------------
(1) Based on billing addresses of the Obligors as of the Cutoff Date, which may
differ from the state of origination of the Receivable.
(2) Includes 25 other states and the District of Columbia, none of which have a
concentration of Receivables in excess of 0.22% of the Initial Pool Balance.
S-12
<PAGE> 13
DISTRIBUTION BY REMAINING PRINCIPAL BALANCE OF THE RECEIVABLES AS OF THE CUTOFF
DATE
<TABLE>
<CAPTION>
PERCENTAGE
REMAINING PRINCIPAL NUMBER OF AGGREGATE OF INITIAL
BALANCE (RANGE) RECEIVABLES PRINCIPAL BALANCE POOL BALANCE
------------------- ----------- ----------------- ------------
<S> <C> <C> <C>
Below $1,000....................................... 86 $ 51,656.15 0.02%
$1,000 to below $5,000............................. 2,032 6,875,639.56 2.17
$5,000 to below $10,000............................ 6,276 49,091,889.44 15.47
$10,000 to below $15,000........................... 8,204 101,838,836.66 32.10
$15,000 to below $20,000........................... 4,897 84,263,524.79 26.56
$20,000 to below $25,000........................... 2,112 46,684,431.47 14.71
$25,000 to below $30,000........................... 691 18,681,840.93 5.89
$30,000 to below $35,000........................... 210 6,693,111.44 2.11
$35,000 to below $40,000........................... 54 1,989,714.66 0.63
$40,000 to below $45,000........................... 19 791,737.96 0.25
$45,000 to below $50,000........................... 4 188,169.24 0.06
$50,000 to below $55,000........................... 2 108,334.83 0.03
------ --------------- ------
Total......................................... 24,587 $317,258,887.13 100.00%
====== =============== ======
</TABLE>
As of the Cutoff Date, approximately 4.8% of the aggregate principal
balance of the Receivables, constituting 6.6% of the number of Receivables, were
between 1 payment and 48 payments paid-ahead. See "Maturity and Prepayment
Assumptions -- Paid-Ahead Receivables" in the Prospectus.
As of the Cutoff Date, all of the Receivables are Simple Interest
Receivables. "SIMPLE INTEREST RECEIVABLES" are receivables that provide for the
amortization of the amount financed under the receivable over a series of fixed
level monthly payments. Each monthly payment includes an installment of interest
which is calculated on the basis of the outstanding principal balance of the
receivable multiplied by the stated Annual Percentage Rate ("APR") and further
multiplied by the period elapsed (as a fraction of a calendar year) since the
preceding payment of interest was made. As payments are received under a Simple
Interest Receivable, the amount received is applied first to interest accrued to
the date of payment and the balance is applied to reduce the unpaid principal
balance. Accordingly, if an Obligor pays a fixed monthly installment before its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have been
had the payment been made as scheduled, and the portion of the payment applied
to reduce the unpaid principal balance will be correspondingly greater.
Conversely, if an Obligor pays a fixed monthly installment after its scheduled
due date, the portion of the payment allocable to interest for the period since
the preceding payment was made will be greater than it would have been had the
payment been made as scheduled, and the portion of the payment applied to reduce
the unpaid principal balance will be correspondingly less. In either case, the
Obligor pays a fixed monthly installment until the final scheduled payment date,
at which time the amount of the final installment is increased or decreased as
necessary to repay the then outstanding principal balance. If a Simple Interest
Receivable is prepaid, the borrower is required to pay interest only to the date
of prepayment.
The Servicer may accede to an Obligor's request to pay scheduled payments
in advance, in which event the Obligor will not be required to make another
regularly
S-13
<PAGE> 14
scheduled payment until the time a scheduled payment not paid in advance is due.
The amount of any payment made in advance will be treated as a principal
prepayment and will be distributed as part of the Principal Distribution Amount
in the month following the Collection Period in which the prepayment was made.
The "COLLECTION PERIOD" with respect to a Distribution Date will be the calendar
month preceding the calendar month in which such Distribution Date occurs. See
"Maturity and Prepayment Assumptions" in the Prospectus.
THE SERVICER
SIZE OF SERVICING PORTFOLIO
As of March 31, 1999, the Servicer serviced approximately 33,936
installments sale contracts, consisting primarily of new and used automobile
(including passenger car, minivan, sport utility vehicles and light truck)
receivables, representing an outstanding balance of approximately $407 million.
DELINQUENCIES AND LOSS
Set forth below is certain information concerning the historical
delinquency and loss experience of Mellon Bank, N.A. and its subsidiaries
pertaining to new and used automobile (including passenger car, minivan, sport
utility vehicle and light truck) receivables originated directly or indirectly
by Mellon Bank, N.A. and its subsidiaries. There can be no assurance that the
delinquency and loss experience on the Receivables will be comparable to that
set forth below.
S-14
<PAGE> 15
DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
----------------------------------------- ----------------------------------------------------
1999 1998 1998 1997 1996
------------------- ------------------- ------------------- ------------------- --------
NUMBER NUMBER NUMBER NUMBER NUMBER
OF LOANS DOLLARS OF LOANS DOLLARS OF LOANS DOLLARS OF LOANS DOLLARS OF LOANS
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Amount
Outstanding (1)....... 33,936 $407,379 21,119 $191,331 30,253 $352,174 22,126 $195,593 26,120
Delinquencies (2)
30-59 Days............. 247 2,646 177 1,207 306 2,793 265 1,871 388
60-89 Days............. 62 628 39 342 69 635 53 384 90
90-119 Days............ 13 205 6 83 24 231 5 30 9
over 120 days.......... 1 12 1 16 1 11 2 21 2
------ -------- ------ -------- ------ -------- ------ -------- ------
Total Delinquencies..... 323 $ 3,491 223 $ 1,647 400 $ 3,670 325 $ 2,306 489
====== ======== ====== ======== ====== ======== ====== ======== ======
Delinquencies (2)(3)
30-59 Days............. 0.65% 0.63% 0.79% 0.96%
60-89 Days............. 0.15% 0.18% 0.18% 0.20%
90-119 Days............ 0.05% 0.04% 0.07% 0.02%
over 120 days.......... 0.00% 0.01% 0.00% 0.01%
-------- -------- -------- --------
Total Delinquencies
(3)................... 0.86% 0.86% 1.04% 1.18%
======== ======== ======== ========
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------
1996 1995 1994
-------- ------------------- -------------------
NUMBER NUMBER
DOLLARS OF LOANS DOLLARS OF LOANS DOLLARS
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Principal Amount
Outstanding (1)....... $211,947 36,742 $263,577 51,001 $346,963
Delinquencies (2)
30-59 Days............. 2,509 511 2,477 737 3,639
60-89 Days............. 465 87 447 131 519
90-119 Days............ 22 5 39 17 74
over 120 days.......... 26 2 17 2 --
-------- ------ -------- ------ --------
Total Delinquencies..... $ 3,022 605 $ 2,980 887 $ 4,232
======== ====== ======== ====== ========
Delinquencies (2)(3)
30-59 Days............. 1.18% 0.94% 1.05%
60-89 Days............. 0.22% 0.17% 0.15%
90-119 Days............ 0.01% 0.01% 0.02%
over 120 days.......... 0.01% 0.01% 0.00%
-------- -------- --------
Total Delinquencies
(3)................... 1.43% 1.13% 1.22%
======== ======== ========
</TABLE>
- ---------------
(1) Principal Amount Outstanding is the aggregate remaining principal balance of
all Receivables serviced, net of unearned interest.
(2) The period of delinquency is based on the number of days scheduled payments
are contractually past due. Includes repossessions on hand which have not
been charged-off. A receivable is 30 days contractually past due if any
portion of a scheduled payment has not been received by the subsequent
calendar month's scheduled payment date.
(3) As a percent of Principal Amount Outstanding in dollars.
S-15
<PAGE> 16
HISTORICAL LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THREE MONTHS
ENDED MARCH 31, FOR YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Period End Principal
Amount Outstanding
(1)..................... $407,379 $191,331 $352,174 $195,593 $211,947 $263,577 $346,963
Average Principal Amount
Outstanding (2)......... $390,196 $191,394 $250,063 $197,164 $223,459 $292,661 $403,495
Number of Loans
Outstanding (as of
period end)............. 33,936 21,119 30,253 22,126 26,120 36,742 51,001
Average Number of Loans
Outstanding (2)......... 32,797 21,405 24,285 23,402 30,172 42,276 60,287
Gross Losses (3).......... $ 555 $ 361 $ 1,496 $ 1,265 $ 1,589 $ 2,115 $ 4,071
Recoveries (4)............ 217 234 876 1,232 1,646 2,434 3,693
-------- -------- -------- -------- -------- -------- --------
Net Losses (Gains) (5).... 339 127 621 33 (57) (319) 378
Net Losses (Gains) as a
Percent of Principal
Amount Outstanding...... 0.34%(6) 0.27%(6) 0.18% 0.02% (0.03%) (0.12%) 0.11%
Net Losses (Gains) as a
Percentage of Average
Principal Amount
Outstanding............. 0.35%(6) 0.27%(6) 0.25% 0.02% (0.03%) (0.11%) 0.09%
</TABLE>
- ---------------
(1) Principal Amount Outstanding is the aggregate remaining principal balance of
all Receivables serviced, net of unearned interest.
(2) Average of the month-end balances for each of the three months or the twelve
months in the applicable calendar year.
(3) Gross Losses is the aggregate remaining principal balance charged-off after
the sale of the related vehicle, other than sales reflected in footnote (4),
and all costs of repossession and sale are credited.
(4) Recoveries generally include amounts received on contracts following the
time at which the contract is charged off.
(5) Net Losses is equal to Gross Losses less Recoveries.
(6) Percentages are Annualized.
As shown in the foregoing tables, the Servicer's portfolio of automobile
loans at March 31, 1999 was approximately 116% and approximately 213% of the
portfolio at December 31, 1998 and March 31, 1998, respectively. At the same
time the average amount of an automobile loan increased to $12,004 at March 31,
1999 from $11,641 at December 31, 1998 and $9,060 at March 31, 1998. The
Servicer believes that the decrease in Total Delinquencies as a Percentage of
the Total Amount Outstanding from 1.04% at December 31, 1998 to 0.86% at March
31, 1999, is primarily attributable to the large increase in the size of the
portfolio. The Servicer believes that the Net Losses (Gains) as a Percent of
Principal Amount Outstanding in 1995 and 1996 reflect the fact that defaults on
automobile loans generally occur with greater frequency in the early months
after origination and gradually diminish over time. Since the Servicer's
portfolio was not being replenished during those years through the addition of
new originations, the positive net loss experience largely reflects the
diminishing frequency of defaults as the automobile loans in its portfolio
seasoned. Beginning in 1997, the Servicer adopted a securitization strategy
which allowed it to offer more competitive rates. As a result, it began to
increase its portfolio through the addition of new originations. The Net Losses
(Gains) as a Percent
S-16
<PAGE> 17
of Principal Amount Outstanding at March 31, 1999, reflects the expected default
experience for the new originations.
Delinquencies and Net Losses are affected by a number of social and
economic factors, including changes in interest rates and unemployment levels,
and there can be no assurance as to the level of future total delinquencies or
the severity of future net losses. As a result, the delinquency and net loss
experience of the Receivables may differ from those shown in the tables.
YEAR 2000 PROJECT
The Servicer is an indirect wholly-owned subsidiary of Mellon Bank
Corporation (the "CORPORATION"). The Corporation has publicly disclosed the
following information concerning its Year 2000 Project.
In early 1996, the Corporation formed a year 2000 project team to identify
information technology and non-information technology systems that require
modification for the year 2000. A project plan has been developed with goals and
target dates. The Corporation's business areas are in various stages of this
project plan. The Corporation's year 2000 plan includes inventory, assessment,
remediation, system testing, enterprise testing, contingency planning and
internal certification. The Corporation has completed approximately 90% of the
remediation and system testing for internal mission critical information
technology systems. In late 1998, the Corporation began significant enterprise
testing (i.e., testing with customers, integration testing between systems and
testing with third-party vendors) of mission critical information technology
systems, which testing is expected to be completed by June 30, 1999. The
Corporation currently expects to have substantially completed remediation and
planned testing of mission critical non-information technology systems by June
30, 1999. The Corporation also currently expects to have substantially completed
remediation and planned testing of both information technology and
non-information systems that the Corporation has determined are of high business
value and priority (although not mission critical) by June 30, 1999.
The impact of year 2000 issues on the Corporation will depend not only on
corrective actions that the Corporation takes, but also on the way in which the
year 2000 issues are addressed by governmental agencies, businesses and other
third parties that provides services or data to, or receive services or data
from, the Corporation, or whose financial condition or operational capability is
important to the Corporation. To reduce this exposure, the Corporation
identified, and has an ongoing process of identifying and contacting mission
critical third party vendors and other significant third parties to determine
their year 2000 plans and target dates. Risks associated with any such third
parties located outside the United States may be higher insofar as it is
generally believed that non-U.S. businesses may not be addressing their year
2000 issues on as timely a basis as U.S. businesses. Notwithstanding the
Corporation's efforts, there can be no assurance that mission critical third
party vendors or other significant third parties will adequately address their
2000 issues.
The Corporation is developing contingency plans to address risks associated
with year 2000 issues. These activities include remediation contingency plans,
year 2000 business
S-17
<PAGE> 18
resumption contingency plans, and event management plans. Remediation
contingency plans address the actions that may be taken if the current approach
to remediating a mission critical technology system is falling behind schedule
or may not be completed when required. Such plans principally involve internal
remediation or identifying alternate vendors. The Corporation has substantially
implemented its remediation contingency plans. Year 2000 business resumption
contingency plans address year 2000 problems that occur, notwithstanding the
remediation efforts of the Corporation and third parties. As a part of its year
2000 business resumption contingency planning, the Corporation is enhancing its
existing business resumption plans to reflect year 2000 issues and is developing
plans designed to coordinate the efforts of its personnel and resources in
addressing any mission critical year 2000 problems that become evident. In this
regard, all existing business resumption plans involving mission critical
processes have been reviewed, and options for addressing potential year 2000
problems have been identified. The Corporation expects to continue reviewing,
enhancing and validating such plans through mid-1999. Event planning is intended
to address year 2000 risks by actively monitoring operations during the period
of time around the turn of the century with a view to identifying any year 2000
problems that occur and taking action to manage and resolve such problems. These
actions may include implementing previously developed business resumption
contingency plans. Event planning is in progress and will continue throughout
1999 and the first quarter of 2000. There can be no assurance that any
contingency plans will fully mitigate any year 2000 failures, problems or
disruptions. Furthermore, there may be certain mission critical third parties,
such as utilities, communication companies, transportation companies or
governmental entities, where alternative arrangements or sources are unavailable
or severely limited.
The Corporation's credit risk associated with borrowers may increase to the
extent borrowers fail to adequately address year 2000 issues. As a result, there
may be increases in the Corporation's problem loans and credit losses in future
years. In addition, the Corporation may be subject to increased risks as a
fiduciary to the extent that issuers of assets it manages or administers fail to
adequately address year 2000 issues and to increased liquidity risks to the
extent of deposit withdrawals or to the extent its lenders are unable to provide
the Corporation with funds due to year 2000 problems. It is not, however,
possible to quantify the potential impact of any such risks or losses at this
time.
Until the year 2000 event actually occurs and for a period of time
thereafter, there can be no assurance that there will be no problems related to
year 2000. The year 2000 technology challenge is an unprecedented event. If year
2000 issues are not adequately addressed by the Corporation and third parties,
the Corporation could face, among other things, business disruptions,
operational problems, financial losses, legal liability and similar risks, and
the Corporation's business, results of operations and financial position could
be materially adversely affected.
The Corporation has indicated in its public disclosure that the foregoing
year 2000 discussion contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements, including
without limitation, the dates by which the Corporation expects to complete
remediation and testing of systems and
S-18
<PAGE> 19
contingency planning and the impact of the redeployment of existing staff, are
based on management's best current estimates, which were derived utilizing
numerous assumptions about future events, including the continued availability
of certain resources, representations received from third party service
providers and other factors. However, there can be no guarantee that these
estimates will be achieved, and actual results could differ materially from
those anticipated. Specific factors that might cause such material differences
include, but are not limited to: the availability and cost of personnel trained
in this area; the ability to identify and convert all relevant systems; results
of year 2000 testing; adequate resolution of year 2000 issues by governmental
agencies, business or other third parties that are service providers, suppliers,
borrowers or customers of the Corporation; unanticipated systems costs; the need
to replace hardware; the adequacy of and ability to implement contingency plans;
and similar uncertainties. The forward-looking statements made in the foregoing
year 2000 discussion were made in the Corporation's Current Report on Form 8-K
dated January 29, 1999. The Corporation indicated that such statements speak
only as of the date on which the statements were made, and the Corporation
undertook no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made or to
reflect the occurrence of unanticipated events. The Corporation also stated that
such discussion constitutes a Year 2000 Readiness Disclosure within the meaning
of the Year 2000 Readiness and Disclosure Act of 1998.
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
Prepayments on automotive receivables can be measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
Absolute Prepayment Model ("ABS"), represents an assumed rate of prepayment each
month relative to the original number of receivables in a pool of receivables.
ABS further assumes that all the receivables are the same size and amortize at
the same rate and that each receivable in each month of its life will either be
paid as scheduled or be prepaid in full. For example, in a pool of receivables
originally containing 10,000 receivables, a 1% ABS rate means that 100
receivables prepay each month. ABS does not purport to be an historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of receivables, including the Receivables.
All the Receivables are prepayable at any time. For this purpose the term
"prepayments" includes prepayments by Obligors in full or in part, certain
partial prepayments related to liquidations due to default, including rebates of
extended warranty contract costs and insurance premiums, as well as receipts of
proceeds from physical damage, credit life, theft and disability insurance
policies and certain other Receivables, purchased or repurchased pursuant to the
terms of the Agreement. The rate of prepayments on the Receivables may be
influenced by a variety of economic, social and other factors, including changes
in interest rates and the fact that an Obligor generally may not sell or
transfer the Financed Vehicle securing a Receivable without the consent of the
secured party, which generally results in the repayment of the remaining
principal balance of the Receivable. In addition, under certain circumstances,
the Seller is obligated to repurchase and the Servicer is obligated to purchase,
Receivables pursuant to the Agreement as a result of certain uncured breaches of
representations and warranties in the case of the Seller
S-19
<PAGE> 20
and certain uncured breaches of covenants in the case of the Servicer. In
addition, the Servicer has the option to purchase the Receivables when the
aggregate principal balance thereof is 10% or less of the Initial Pool Balance,
at a purchase price equal to the sum of the Class A Principal Balance and the
Class B Principal Balance plus accrued and unpaid interest thereon. Accordingly,
under certain circumstances it is likely that the Certificates will be repaid
before the Final Scheduled Distribution Date set forth herein under "Summary of
Terms -- Final Scheduled Distribution Date." Reinvestment risk associated with
early payment of the Certificates will be borne exclusively by the
Certificateholders.
The table captioned "Percent of Initial Class A and Class B Principal
Balance at Various ABS Percentages" (the "ABS TABLE") has been prepared on the
basis of the characteristics of the Receivables. The ABS Table assumes that:
(1) the Receivables prepay in full at the specified constant percentage
of ABS monthly, with no defaults, losses or repurchases,
(2) each scheduled monthly payment on the Receivables is due and made
on the last day of each month and each month has 30 days,
(3) distributions on the Certificates are made on each Distribution
Date (and each such date is assumed to be the fifteenth day of each
applicable month),
(4) the balance in the Reserve Account on each Distribution Date is
equal to the Specified Reserve Account Balance, and
(5) the Servicer does not exercise its option to purchase the
Receivables.
The ABS Table sets forth the percent of the Initial Class A Principal
Balance and the percent of the Initial Class B Principal Balance that would be
outstanding after each of the Distribution Dates shown and the corresponding
weighted average lives thereof at various constant ABS percentages.
The ABS Table also assumes that the Receivables have been aggregated into
six hypothetical pools with all of the Receivables within each such pool having
the following characteristics and that the level scheduled monthly payment for
each of the six pools (which is based on its aggregate principal balance,
weighted average APR, weighted average original term to maturity and weighted
average remaining term to maturity as of the cutoff date) will be such that each
pool will fully amortize by the end of its remaining term to maturity.
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
ORIGINAL TERM REMAINING TERM
AGGREGATE WEIGHTED AVERAGE TO MATURITY TO MATURITY
POOL PRINCIPAL BALANCE ANNUAL PERCENTAGE RATE (IN MONTHS) (IN MONTHS)
- ---- ----------------- ---------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1..................... $ 750,086.51 9.346% 28.1 9.8
2..................... 6,094,787.09 9.755 35.6 19.7
3..................... 21,646,215.68 9.605 44.2 31.4
4..................... 59,989,417.60 9.360 55.0 43.2
5..................... 168,183,924.14 9.043 60.9 54.8
6..................... 60,594,456.11 9.332 70.1 65.5
---------------
$317,258,887.13
</TABLE>
S-20
<PAGE> 21
The actual characteristics and performance of the Receivables will differ
from the assumptions used in constructing the ABS Table. The assumptions used
are hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the Receivables will prepay at the
same level of ABS. Moreover, the diverse terms of Receivables within each of the
six hypothetical pools could produce slower or faster principal distributions
than indicated in the ABS Table at the various constant percentages of ABS
specified, even if the original and remaining terms to maturity of the
Receivables are as assumed. Any difference between such assumptions and the
actual characteristics and performance of the Receivables, or actual prepayment
experience, will affect the percentages of initial balances outstanding over
time and the weighted average lives of the Class A Certificates and the Class B
Certificates.
PERCENT OF INITIAL CLASS A AND CLASS B PRINCIPAL BALANCE AT VARIOUS ABS
PERCENTAGES
<TABLE>
<CAPTION>
CERTIFICATES
--------------------------------------------------------
ASSUMED ABS PERCENTAGE
--------------------------------------------------------
DISTRIBUTION DATES 0.5% 1.0% 1.5% 2.0%
- ------------------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
Closing Date............... 100 100 100 100
May 15, 1999............... 98 97 97 96
June 15, 1999.............. 96 95 93 92
July 15, 1999.............. 93 92 90 88
August 15, 1999............ 91 89 87 84
September 15, 1999......... 89 87 84 81
October 15, 1999........... 87 84 81 77
November 15, 1999.......... 85 81 78 73
December 15, 1999.......... 83 79 75 70
January 15, 2000........... 80 76 72 67
February 15, 2000.......... 78 74 69 63
March 15, 2000............. 76 71 66 60
April 15, 2000............. 74 69 63 57
May 15, 2000............... 72 66 60 54
June 15, 2000.............. 70 64 58 51
July 15, 2000.............. 68 62 55 48
August 15, 2000............ 66 59 52 45
September 15, 2000......... 64 57 50 42
October 15, 2000........... 62 55 47 39
November 15, 2000.......... 59 52 45 37
December 15, 2000.......... 57 50 43 34
January 15, 2001........... 55 48 40 32
February 15, 2001.......... 53 46 38 29
March 15, 2001............. 52 44 36 27
April 15, 2001............. 50 42 34 25
May 15, 2001............... 48 40 32 23
June 15, 2001.............. 46 38 30 21
July 15, 2001.............. 44 36 28 19
August 15, 2001............ 42 34 26 17
September 15, 2001......... 40 32 24 16
October 15, 2001........... 38 31 23 14
November 15, 2001.......... 36 29 21 12
</TABLE>
S-21
<PAGE> 22
<TABLE>
<CAPTION>
CERTIFICATES
--------------------------------------------------------
ASSUMED ABS PERCENTAGE
--------------------------------------------------------
DISTRIBUTION DATES 0.5% 1.0% 1.5% 2.0%
- ------------------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
December 15, 2001.......... 35 27 19 11
January 15, 2002........... 33 26 18 10
February 15, 2002.......... 31 24 17 8
March 15, 2002............. 30 23 15 7
April 15, 2002............. 28 21 14 6
May 15, 2002............... 26 20 13 5
June 15, 2002.............. 25 18 11 4
July 15, 2002.............. 23 17 10 3
August 15, 2002............ 21 16 9 3
September 15, 2002......... 20 14 8 2
October 15, 2002........... 18 13 7 1
November 15, 2002.......... 17 12 6 1
December 15, 2002.......... 15 11 6 0
January 15, 2003........... 14 10 5 0
February 15, 2003.......... 13 9 4 0
March 15, 2003............. 12 8 4 0
April 15, 2003............. 11 7 3 0
May 15, 2003............... 10 6 3 0
June 15, 2003.............. 8 5 2 0
July 15, 2003.............. 7 5 2 0
August 15, 2003............ 6 4 1 0
September 15, 2003......... 5 3 1 0
October 15, 2003........... 4 2 1 0
November 15, 2003.......... 3 2 0 0
December 15, 2003.......... 3 1 0 0
January 15, 2004........... 2 1 0 0
February 15, 2004.......... 2 1 0 0
March 15, 2004............. 2 1 0 0
April 15, 2004............. 2 1 0 0
May 15, 2004............... 1 1 0 0
June 15, 2004.............. 1 1 0 0
July 15, 2004.............. 1 0 0 0
August 15, 2004............ 0 0 0 0
September 15, 2004......... 0 0 0 0
October 15, 2004........... 0 0 0 0
November 15, 2004.......... 0 0 0 0
December 15, 2004.......... 0 0 0 0
Weighted Average Life
(years) (1).............. 2.11 1.87 1.61 1.34
Weighted Average Life to
Optional Clean-Up Call
(years) (1).............. 2.06 1.81 1.55 1.30
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Optional Clean-Up Call
Date....................... May 15, 2003 January 15, 2003 August 15, 2002 January 15, 2002
</TABLE>
- ---------------
(1) The weighted average life of a Certificate is determined by (i) multiplying
the amount of each principal payment of such Certificate by the number of
years from the date of the issuance of such Certificate to the Distribution
Date on which such principal payment is made, (ii) adding the results and
(iii) dividing the sum by the initial principal balance of such Certificate.
THE ABS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
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USE OF PROCEEDS
The net proceeds from the sale of the Certificates will be applied by the
Depositor first, to deposit $4,758,883.31 into the Reserve Account and second,
to purchase the Receivables and the other Trust Property from the Seller.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement, substantially in
the form filed as an exhibit to the Registration Statement. The following
information summarizes all material provisions of the Certificates and the
Agreement. The following summary supplements the description of the general
terms and provisions of the Certificates of any given Series and the related
Agreement set forth in the Prospectus, to which description reference is hereby
made.
OVERVIEW OF THE CERTIFICATES
The Class A Certificates will be issued in an initial aggregate principal
amount of $307,741,000.00 (the "INITIAL CLASS A PRINCIPAL BALANCE") and the
Class B Certificates will be issued in an initial aggregate principal amount of
$9,517,887.13 (the "INITIAL CLASS B PRINCIPAL BALANCE"). The Certificates will
evidence fractional undivided interests in the assets of the Trust to be created
pursuant to the Agreement. The Class A Certificates will evidence in the
aggregate an undivided ownership interest of approximately 97% of the Trust (the
"CLASS A PERCENTAGE") and the Class B Certificates will evidence in the
aggregate an undivided ownership interest of approximately 3% of the Trust (the
"CLASS B PERCENTAGE").
The Certificates will constitute Fixed Rate Securities, as such term is
defined under "Certain Information Regarding the Securities -- Fixed Rate
Securities" in the Prospectus. Interest on the outstanding principal amount of
each class of Certificates will accrue at the fixed rate per annum specified for
such class on the cover page hereof (each such rate, a "PASS-THROUGH RATE").
Interest on the outstanding principal amount of each class of Certificates will
accrue at the related Pass-Through Rate from and including April 15, 1999 (in
the case of the first Distribution Date), or from and including the most recent
Distribution Date on which interest has been paid to but excluding the following
Distribution Date (each representing an "INTEREST PERIOD"). Interest on the
Certificates will be calculated on the basis of a 360 day year consisting of
twelve 30 day months. Distributions of principal and interest will be made on
the 15th day of each month, or if such 15th day is not a business day on the
next succeeding Business Day (each, a "DISTRIBUTION DATE"), commencing May 17,
1999. Distributions on a Distribution Date will be made to Certificateholders of
record on the Business Day prior to the applicable Distribution Date, or if
definitive Certificates have been issued, the last day of the month prior to a
Distribution Date (each such date, a "RECORD DATE"). A "BUSINESS DAY" is a day
other than a Saturday, a Sunday or a day on which banking institutions or trust
companies in New York, New York, Minneapolis, Minnesota or Pittsburgh,
Pennsylvania are authorized by law, regulation, executive order or governmental
decree to be closed.
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The Certificates will be available in book-entry form through the
facilities of The Depository Trust Company in the United States and Cedelbank
and the Euroclear System in Europe. See "Certain Information Regarding the
Securities -- Book-Entry Registration" and "-- Definitive Securities" in the
Prospectus and Annex I thereto.
THE POOLING AND SERVICING AGREEMENT
Sale and Assignment of the Receivables
Certain information regarding the conveyance of the Receivables by the
Seller to the Depositor and by the Depositor to the Trust on the Closing Date
pursuant to the Agreement is set forth in the Prospectus under "Description of
the Transfer and Servicing Agreements -- Sale and Assignment of Receivables."
Accounts
The Servicer will establish one or more segregated accounts (the
"COLLECTION ACCOUNT"), in the name of the Trustee on behalf of the Trust and the
Certificateholders, into which all payments made on or with respect to the
Receivables will be deposited. The Servicer will also establish a segregated
account (the "CLASS A DISTRIBUTION ACCOUNT"), in the name of the Trustee on
behalf of the Trust and the Class A Certificateholders, and a segregated account
(the "CLASS B DISTRIBUTION ACCOUNT"), in the name of the Trustee on behalf of
the Trust and the Class B Certificateholders, from which all distributions with
respect to the Class A Certificates and the Class B Certificates, respectively,
will be made. The Servicer will establish the Reserve Account as a segregated
account with The Chase Manhattan Bank, as collateral agent on behalf of the
Certificateholders. The Collection Account, the Class A Distribution Account,
the Class B Distribution Account and the Reserve Account are sometimes referred
to as the "TRUST ACCOUNTS." The Reserve Account will be maintained for the
benefit of the Certificateholders, but will not be an asset of the Trust.
Servicing Compensation
The Servicer will be entitled to receive a fee (the "BASE SERVICING FEE")
for each Collection Period in an amount equal to the product of one-twelfth of
0.50% per annum (the "SERVICING FEE RATE") and the Pool Balance as of the first
day of the Collection Period. The "BASE SERVICING FEE" will also include any
late fees, other administrative fees or similar charges allowed by applicable
law with respect to the Receivables. The Base Servicing Fee, together with any
portion of the Base Servicing Fee that remains unpaid from prior Distribution
Dates (collectively, the "SERVICING FEE"), will be paid on each Distribution
Date out of Interest Collections from the Receivables prior to distributions to
the Certificateholders. If Mellon Bank, N.A. or an affiliate thereof is no
longer the Servicer, such non-affiliated Servicer will also be entitled to
receive an additional fee (the "NON-AFFILIATED SUBORDINATED SERVICING FEE") for
each Collection Period in an amount equal to the product of the Servicing Fee
Rate and the Pool Balance as of the first day of the Collection Period. The
Non-Affiliated Subordinated Servicing Fee, together with any portion of the
Non-Affiliated Subordinated Servicing Fee that remains unpaid from prior
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Distribution Dates, will be paid from the Reserve Account in the order of
priority described herein. See "Description of the Transfer and Servicing
Agreement -- Servicing Compensation and Payment of Expenses" in the Prospectus.
DISTRIBUTIONS ON CERTIFICATES
Deposits to the Collection Account. On or before the earlier of the tenth
Business Day of the month in which a Distribution Date occurs and the fourth
Business Day preceding such Distribution Date (the "DETERMINATION DATE"), the
Servicer will provide the Trustee with certain information with respect to the
preceding Collection Period, including the aggregate amounts of the following:
- Collections on the Receivables
- Advances to be remitted by the Servicer
- Liquidated Receivables, if any
- Purchase Amounts of the Receivables to be repurchased by the Seller or
purchased by the Servicer with respect to such Distribution Date
On or before the Business Day preceding each Distribution Date, the
Servicer will cause the Interest Collections and the Principal Collections for
such Distribution Date to be deposited into the Collection Account.
"COLLECTIONS" for any Distribution Date will equal the sum of Interest
Collections and Principal Collections for the related Distribution Date.
"INTEREST COLLECTIONS" for any Distribution Date will equal the sum of the
following amounts with respect to any Distribution Date, computed in accordance
with the simple interest method:
- that portion of all collections on the Receivables allocable to interest
in respect of the preceding Collection Period;
- all proceeds (other than any proceeds from any Dealer commission)
("LIQUIDATION PROCEEDS") of the liquidation of Liquidated Receivables,
net of expenses incurred by the Servicer in connection with such
liquidation and any amounts required by law to be remitted to the Obligor
on such Liquidated Receivables, to the extent attributable to interest
due thereon, which became Liquidated Receivables during such Collection
Period in accordance with the Servicer's customary servicing procedures;
- the Purchase Amount of each Receivable that was repurchased by the Seller
or purchased by the Servicer during the preceding Collection Period to
the extent attributable to accrued interest thereon;
- all monies collected, from whatever source (other than any proceeds from
any Dealer commission), in respect to Liquidated Receivables during any
Collection Period following the Collection Period in which such
Receivable was written off, net of the sum of any amounts expended by the
Servicer for the account of the
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Obligor and any amounts required by law to be remitted to the Obligor
("RECOVERIES"); and
- all Advances for such Distribution Date.
In calculating the Interest Collections, all payments and proceeds
(including Liquidation Proceeds) of any Receivables repurchased by the Seller or
purchased by the Servicer the Purchase Amount of which has been included in the
Interest Collections on a prior Distribution Date shall be excluded.
"PRINCIPAL COLLECTIONS" for any Distribution Date will equal the sum of the
following amounts with respect to any Distribution Date, computed in accordance
with the simple interest method:
- that portion of all collections on the Receivables allocable to principal
in respect of the preceding Collection Period, without regard to any
extensions or modifications thereof effected after the Cutoff Date, other
than with respect to any extensions or modifications in connection with
Cram Down Losses During such Collection Period;
- Liquidation Proceeds attributable to the principal amount of Receivables
which became Liquidated Receivables during the preceding Collection
Period in accordance with the Servicer's customary servicing procedures
with respect to such Liquidated Receivables;
- to the extent attributable to principal, the Purchase Amount of each
Receivable repurchased by the Seller or purchased by the Servicer during
the preceding Collection Period; and
- partial prepayments on Receivables in respect of the preceding Collection
Period relating to refunds of extended service contracts, or of physical
damage, credit life, credit accident or health insurance premium,
disability insurance policy premiums, but only if such costs or premiums
were financed by the respective Obligor and only to the extent not
included in the first bullet point above.
In calculating the Principal Collections, all payments and proceeds
(including Liquidation Proceeds) of any Receivables repurchased by the Seller or
purchased by the Servicer the Purchase Amount of which has been included in the
Principal Collections on a prior Distribution Date shall be excluded.
Monthly Withdrawals from the Collection Account. On each Distribution
Date, the Servicer shall calculate the amounts set forth below and shall
instruct the Trustee to make the following deposits and distributions, after
payment to the Servicer from the Collection Account of amounts in reimbursement
of Advances previously made by the Servicer (as described below under
"-- Advances"), to the extent of Interest Collections (and, in the case of
shortfalls occurring under clause (2) below in the Class A Interest
Distribution, the Class B Percentage of Principal Collections to the extent of
such shortfalls):
(1) to the Servicer, the Servicing Fee;
(2) to the Class A Distribution Account, after the application of
clause (1), the Class A Interest Distribution; and
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(3) to the Class B Distribution Account, after the application of
clauses (1) and (2), the Class B Interest Distribution.
On each Distribution Date, the Servicer shall calculate the amounts set
forth below and shall instruct the Trustee to make the following deposits
and distributions, to the extent of Principal Collections and Interest
Collections remaining after the application of clauses (1), (2) and (3)
above:
(4) to the Class A Distribution Account, the Class A Principal
Distribution;
(5) to the Class B Distribution Account, after the application of
clause (4), the Class B Principal Distribution; and
(6) to the Reserve Account, any amounts remaining after the application
of clauses (1) through (5); such amounts to be distributed as described
below under "Credit Enhancement -- Reserve Account."
To the extent necessary to satisfy the distributions described in clauses
(1) through (5) above, the Servicer shall calculate the amounts set forth below
and shall instruct the Trustee to withdraw from the Reserve Account and deposit
in the Class A Distribution Account or the Class B Distribution Account as
described below in the following order of priority on each Distribution Date:
(1) an amount equal to the excess of the Class A Interest Distribution
over the sum of Interest Collections and the Class B Percentage of
Principal Collections will be deposited into the Class A Distribution
Account;
(2) an amount equal to the excess of the Class B Interest Distribution
over the portion of Interest Collections remaining after the distribution
of the Class A Interest Distribution will be deposited into the Class B
Distribution Account;
(3) an amount equal to the excess of the Class A Principal Distribution
over the portion of Principal Collections and Interest Collections
remaining after the distribution of the Class A Interest Distribution and
the Class B Interest Distribution will be deposited into the Class A
Distribution Account; and
(4) an amount equal to the excess of the Class B Principal Distribution
over the portion of Principal Collections and Interest Collections
remaining after the distribution of the Class A Interest Distribution, the
Class B Interest Distribution and the Class A Principal Distribution will
be deposited into the Class B Distribution Account.
On each Distribution Date, all amounts on deposit in the Class A
Distribution Account will be distributed to the Class A Certificateholders and
all amounts on deposit in the Class B Distribution Account will be distributed
to the Class B Certificateholders.
RELATED DEFINITIONS
For purposes hereof, the following terms have the following meanings:
"CRAM DOWN LOSS" means, with respect to a Receivable if a court of
appropriate jurisdiction in a bankruptcy or insolvency proceeding shall have
issued an order reducing
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the amount owed on such Receivable or otherwise modifying or restructuring the
scheduled payments to be made on such Receivable, an amount equal to:
(1) the excess of the principal balance of such Receivable immediately
prior to such order over the principal balance of such Receivable as so
reduced; and/or
(2) if such court shall have issued an order reducing the effective
rate of interest on such Receivable, the net present value (using as the
discount rate the higher of the APR on such Receivable or the rate of
interest, if any, specified by the court in such order) of the scheduled
payments as so modified or restructured.
A "Cram Down Loss" shall be deemed to have occurred on the date of issuance
of such order.
"CLASS A INTEREST CARRYOVER SHORTFALL" means, with respect to any
Distribution Date, the excess of Class A Monthly Interest for the preceding
Distribution Date and any outstanding Class A Interest Carryover Shortfall on
such preceding Distribution Date, over the amount in respect of interest that is
actually deposited in the Class A Distribution Account on such preceding
Distribution Date, plus 30 days of interest on such excess, to the extent
permitted by law, at the Class A Pass-Through Rate.
"CLASS A INTEREST DISTRIBUTION" means, with respect to any Distribution
Date, the sum of Class A Monthly Interest for such Distribution Date and the
Class A Interest Carryover Shortfall for such Distribution Date.
"CLASS A MONTHLY INTEREST" means, with respect to any Distribution Date,
the product of (x) one-twelfth of the Class A Pass-Through Rate and (y) the
Class A Principal Balance as of the immediately preceding Distribution Date
(after giving effect to any payments made on such Distribution Date) or, in the
case of the first Distribution Date, the Initial Class A Principal Balance.
"CLASS A MONTHLY PRINCIPAL" means, with respect to any Distribution Date,
the Class A Percentage of Principal Collections for such Distribution Date plus
the sum of (1) the Class A Percentage of Realized Losses with respect to
Receivables which became Liquidated Receivables during the related Collection
Period and (2) the Class A Percentage of the aggregate amount of Cram Down
Losses during the related Collection Period.
"CLASS A PASS-THROUGH RATE" means, with respect to the Class A
Certificates, 5.46% per annum.
"CLASS A PRINCIPAL BALANCE" equals the Initial Class A Principal Balance,
as reduced by all amounts allocable to principal on the Class A Certificates
previously distributed to Class A Certificateholders.
"CLASS A PRINCIPAL CARRYOVER SHORTFALL" means, with respect to any
Distribution Date, the excess of Class A Monthly Principal for the preceding
Distribution Date and any outstanding Class A Principal Carryover Shortfall on
such preceding Distribution Date over the amount in respect of principal that is
actually deposited in the Class A Distribution Account on such preceding
Distribution Date.
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"CLASS A PRINCIPAL DISTRIBUTION" means, with respect to any Distribution
Date, the sum of Class A Monthly Principal for such Distribution Date and the
Class A Principal Carryover Shortfall for such Distribution Date; provided,
however, that the Class A Principal Distribution shall not exceed the Class A
Principal Balance immediately prior to such Distribution Date. In addition, on
the Final Scheduled Distribution Date, the principal required to be deposited in
the Class A Distribution Account will include the lesser of:
(a) any principal due and remaining unpaid on each Receivable in the
Trust as of the Final Scheduled Maturity Date; or
(b) the portion of the amount required to be deposited under clause (a)
above that is necessary (after giving effect to the other amounts to be
deposited in the Class A Distribution Account on such Distribution Date and
allocable to principal) to reduce the Class A Principal Balance to zero.
"CLASS B INTEREST CARRYOVER SHORTFALL" means, with respect to any
Distribution Date, the excess of Class B Monthly Interest for the preceding
Distribution Date and any outstanding Class B Interest Carryover Shortfall on
such preceding Distribution Date, over the amount in respect of interest that is
actually deposited in the Class B Distribution Account on such preceding
Distribution Date, plus 30 days of interest on such excess, to the extent
permitted by law, at the Class B Pass-Through Rate.
"CLASS B INTEREST DISTRIBUTION" means, with respect to any Distribution
Date, the sum of Class B Monthly Interest for such Distribution Date and the
Class B Interest Carryover Shortfall for such Distribution Date.
"CLASS B MONTHLY INTEREST" means, with respect to any Distribution Date,
the product of (x) one-twelfth of the Class B Pass-Through Rate and (y) the
Class B Principal Balance as of the immediately preceding Distribution Date
(after giving effect to any payments made on such Distribution Date) or, in the
case of the first Distribution Date, the Initial Class B Principal Balance.
"CLASS B MONTHLY PRINCIPAL" means, with respect to any Distribution Date,
the Class B Percentage of Principal Collections for such Distribution Date plus
the sum of (1) the Class B Percentage of Realized Losses with respect to
Receivables which became Liquidated Receivables during the related Collection
Period and (2) the Class B Percentage of the aggregate amount of Cram Down
Losses during the related Collection Period.
"CLASS B PASS-THROUGH RATE" means, with respect to the Class B
Certificates, 5.76% per annum.
"CLASS B PRINCIPAL BALANCE" equals the Initial Class B Principal Balance,
as reduced by all amounts allocable to principal on the Class B Certificates
previously distributed to Class B Certificateholders.
"CLASS B PRINCIPAL CARRYOVER SHORTFALL" means, with respect to any
Distribution Date, the excess of Class B Monthly Principal for the preceding
Distribution Date and any outstanding Class B Principal Carryover Shortfall on
such preceding Distribution Date over the amount in respect of principal that is
actually deposited in the Class B Distribution Account on such preceding
Distribution Date.
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"CLASS B PRINCIPAL DISTRIBUTION" means, with respect to any Distribution
Date, the sum of Class B Monthly Principal for such Distribution Date and the
Class B Principal Carryover Shortfall for such Distribution Date; provided,
however, that the Class B Principal Distribution shall not exceed the Class B
Principal Balance immediately prior to such Distribution Date. In addition, on
the Final Scheduled Distribution Date, the principal required to be distributed
to Class B Certificateholders will include the lesser of:
(a) any principal due and remaining unpaid on each Receivable in the
Trust as of the Final Scheduled Maturity Date; or
(b) the portion of the amount required to be deposited under clause (a)
above that is necessary (after giving effect to the other amounts to be
deposited in the Class B Distribution Account on such Distribution Date and
allocable to principal) to reduce the Class B Principal Balance to zero,
and, in the case of clauses (a) and (b), remaining after any required
distribution of the amount described in clause (a) to the Class A
Distribution Account.
"LIQUIDATED RECEIVABLES" means, Receivables (x) which have been liquidated
by the Servicer through the sale of the related Financed Vehicle, (y) as to
which all or a portion representing 10% or more of a scheduled payment due is
120 or more days delinquent or (z) with respect to which proceeds have been
received which, in the Servicer's judgment, constitute the final amounts
recoverable in respect of such Receivable.
The "POOL BALANCE" at any time will represent the aggregate principal
balance of the Receivables at the end of the preceding Collection Period, after
giving effect to all payments received from Obligors and Purchase Amounts to be
remitted by the Servicer and the Seller, as the case may be, all for such
Collection Period, all losses realized on Receivables that became Liquidated
Receivables during such Collection Period and all Cram Down Losses for such
Collection Period.
"REALIZED LOSSES" means, for any period, the excess of the principal
balance of a Liquidated Receivable over Liquidation Proceeds to the extent
allocable to principal.
ADVANCES
With respect to any Distribution Date, the Servicer may, in its sole
discretion, make a payment (an "ADVANCE") with respect to each Receivable (other
than a Liquidated Receivable) equal to the excess, if any, of (x) the product of
the principal balance of such Receivable as of the last day of the related
Collection Period and one-twelfth of its APR, over (y) the interest actually
received by the Servicer with respect to such Receivable from the Obligor or
from the payment of the Repurchase Amount during or with respect to such
Collection Period. The Servicer may elect not to make any Advance with respect
to a Receivable to the extent that the Servicer, in its sole discretion,
determines that such Advance is not recoverable from subsequent payments on such
Receivable or from funds in the Reserve Account.
To the extent that the amount set forth in clause (y) above plus amounts
withdrawn from the Reserve Account during or with respect to such Collection
Period and allocable to interest with respect to a Receivable is greater than
the amount set forth in clause (x) above
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<PAGE> 31
with respect thereto, such amount shall be distributed to the Servicer on the
related Distribution Date to reimburse the Servicer for previous unreimbursed
Advances with respect to such Receivable. Before a Receivable becomes a
Liquidated Receivable, any such reimbursement will only be from accrued interest
due from the Obligor under such Receivable.
In addition, on the Business Day before each Distribution Date the Trustee
shall withdraw from the Reserve Account an amount equal to the amount of any
outstanding Advances of interest accrued on Liquidated Receivables to the extent
not recovered from Liquidation Proceeds.
The Servicer will deposit all Advances with respect to any Distribution
Date into the Collection Account on the Business Day before each Distribution
Date.
CREDIT ENHANCEMENT
Subordination of the Class B Certificates. The rights of the Class B
Certificateholders to receive distributions with respect to the Receivables will
be subordinated to the rights of the Class A Certificateholders to the extent
described below. This subordination is intended to enhance the likelihood of
timely receipt by Class A Certificateholders of the full amount of interest and
principal required to be paid to them, and to afford such Class A
Certificateholders limited protection against losses in respect of the
Receivables.
No distribution will be made to the Class B Certificateholders on any
Distribution Date in respect of interest until the full amount of interest on
the Class A Certificates payable on such Distribution Date has been distributed
to the Class A Certificateholders. No distribution will be made to the Class B
Certificateholders on any Distribution Date in respect of principal until the
full amount of interest on and principal of the Class A Certificates and
interest on the Class B Certificates payable on such Distribution Date has been
distributed to the Class A Certificateholders and the Class B
Certificateholders, respectively. Distributions of interest on the Class B
Certificates, however, to the extent of collections on or in respect of the
Receivables allocable to interest and certain available amounts on deposit in
the Reserve Account, will not be subordinated to the payment of principal of the
Class A Certificates.
Reserve Account. In the event of delinquencies or losses on the
Receivables, the protection afforded to the Class A Certificateholders will be
effected both by the preferential right of the Class A Certificateholders to
receive current distributions with respect to the Receivables, to the extent
described above under "-- Subordination of the Class B Certificates," prior to
any distribution being made on a Distribution Date to the Class B
Certificateholders, and to receive amounts on deposit in the Reserve Account.
Amounts on deposit in the Reserve Account will also be generally available to
cover shortfalls in required distributions to the Class B Certificateholders, in
respect of interest, after payment of interest on the Class A Certificates and,
in respect of principal, after payment of interest on and principal of the Class
A Certificates and interest on the Class B Certificates. The Reserve Account
will not be a part of or otherwise includible in the Trust and will be a
segregated trust account held by the Collateral Agent for the benefit of the
Certificateholders.
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Pursuant to the Agreement, the Reserve Account will be created and
maintained with the Collateral Agent. On the Closing Date, the Depositor will
deposit $4,758,883.31 (1.5% of the Initial Pool Balance) (the "RESERVE ACCOUNT
INITIAL DEPOSIT") into the Reserve Account. The Reserve Account Initial Deposit
will be augmented on each Distribution Date by deposit therein of Collections
remaining after distribution of the Servicing Fee and amounts to be paid to
Class A Certificateholders and Class B Certificateholders as described above
under "-- Distributions on Certificates." To the extent that amounts on deposit
in the Reserve Account after distributions on a Distribution Date exceed the
Specified Reserve Account Balance, such excess will be released first, to the
Servicer (if the Servicer is not Mellon Bank, N.A. or an affiliate thereof), in
an amount equal to the Non-Affiliated Subordinated Servicing Fee, together with
any portion of the Non-Affiliated Subordinated Servicing Fee that remains unpaid
from prior Distribution Dates, and second, to the Depositor. Upon any such
release to the Depositor of amounts from the Reserve Account, neither the Class
A Certificateholders nor the Class B Certificateholders will have any further
rights in, or claims to, such amounts.
"SPECIFIED RESERVE ACCOUNT BALANCE" with respect to any Distribution Date
will equal 3.00% of the Pool Balance as of the last day of the related
Collection Period, but in any event will not be less than the lesser of:
(1) $2,379,441.65 (0.75% of the Initial Pool Balance), and
(2) such Pool Balance;
provided, that if the Average Net Loss Ratio exceeds 1.50% or the
Average Delinquency Percentage exceeds 1.50% on a Distribution Date
(beginning with the July 1999 Distribution Date), the Specified Reserve
Account Balance for such Distribution Date shall be calculated using a
percentage of 6.00%.
"AGGREGATE NET LOSSES" means, for any Distribution Date, the amount equal
to (1) the aggregate Principal Balance of all Receivables that became Liquidated
Receivables during the related Collection Period minus (2) the Liquidation
Proceeds allocable to principal collected during such Collection Period with
respect to any Liquidated Receivables.
"AVERAGE DELINQUENCY PERCENTAGE" means, for any Distribution Date, the
average of the Delinquency Percentages for such Distribution Date and the
preceding two Distribution Dates.
"AVERAGE NET LOSS RATIO" means, for any Distribution Date, the average of
the Net Loss Ratios for such Distribution Date and the preceding two
Distribution Dates.
"DELINQUENCY PERCENTAGE" means, for any Distribution Date, the sum of the
outstanding Principal Balances of all Receivables which are 60 days or more
delinquent (including Receivables relating to Financed Vehicles that have been
repossessed), as of the close of business on the last day of the Collection
Period immediately preceding such Distribution Date, determined in accordance
with the Servicer's normal practices, such sum expressed as a percentage of the
Pool Balance as of the close of business on the last day of such Collection
Period.
"LIQUIDATION PROCEEDS" means with respect to any Receivable,
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(1) insurance proceeds,
(2) the monies collected during a Collection Period from whatever
source on a Liquidated Receivable and
(3) proceeds of a Financed Vehicle sold after repossession, in each
case, net of any liquidation expenses and payments required by law to be
remitted to the Obligor.
"NET LOSS RATIO" means, for any Distribution Date, an amount expressed as a
percentage, equal to (1) the Aggregate Net Losses for such Distribution Date,
divided by (2) the average of the Pool Balances on each of the first day of the
related Collection Period and the last day of the related Collection Period.
The Specified Reserve Account Balance may be reduced to a lesser amount;
provided, that such reduction may not adversely affect any rating of the
Certificates by a Rating Agency.
In no circumstances will the Depositor be required to deposit any amounts
in the Reserve Account other than the Reserve Account Initial Deposit to be made
on the Closing Date.
Amounts held from time to time in the Reserve Account will continue to be
held for the benefit of the Certificateholders and may be invested in Eligible
Investments. Any loss on such investment will be charged to the Reserve Account.
Any investment earnings (net of losses) will be paid to the Depositor.
The time necessary for the Reserve Account to reach and maintain the
Specified Reserve Account Balance at any time after the date of issuance of the
Certificates will be affected by the delinquency, credit loss and repossession
and prepayment experience of the Receivables and, therefore, cannot be
accurately predicted.
If on any Distribution Date the protection afforded the Class A
Certificates by the Class B Certificates and by the Reserve Account is
exhausted, the Class A Certificateholders will directly bear the risks
associated with ownership of the Receivables. If on any Distribution Date
amounts on deposit in the Reserve Account have been depleted, the protection
afforded the Class B Certificates by the Reserve Account will be exhausted and
the Class B Certificateholders will directly bear the risks associated with
ownership of the Receivables.
None of the Class B Certificateholders, the Trustee, the Servicer, the
Seller or the Depositor will be required to refund any amounts properly
distributed or paid to them, whether or not there are sufficient funds on any
subsequent Distribution Date to make full distributions to the Class A
Certificateholders.
TERMINATION
The Servicer will be permitted, at its option, in the event that the Pool
Balance as of the last day of a Collection Period has declined to 10% or less of
the Initial Pool Balance, to purchase from the Trust, on any Distribution Date
occurring in a subsequent Collection Period, all remaining Receivables in the
Trust at a purchase price equal to the sum of the Class A Principal Balance and
the Class B Principal Balance plus accrued and unpaid
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<PAGE> 34
interest thereon at the applicable Pass-Through Rates. The exercise of this
right will effect an early retirement of the Certificates. See "Description of
the Transfer and Servicing Agreements -- Termination" in the Prospectus.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency
of the Agreement, the Certificates (other than the execution and authentication
of the Certificates), the Receivables or any related documents, and will not be
accountable for the use or application by the Depositor or the Servicer of any
funds paid to the Depositor or the Servicer in respect of the Certificates or
the Receivables, or the investment of any monies by the Servicer before such
monies are deposited into the Collection Account. The Trustee will not
independently verify the Receivables. If no Event of Servicing Termination (as
described in the Prospectus) has occurred and is continuing, the Trustee will be
required to perform only those duties specifically required of it under the
Agreement. Generally, those duties are limited to the receipt of the various
certificates, reports or other instruments required to be furnished to the
Trustee under the Agreement, in which case it will only be required to examine
them to determine whether they conform to the requirements of the Agreement. The
Trustee will not be charged with knowledge of a failure by the Servicer to
perform its duties under the Agreement which failure constitutes an Event of
Servicing Termination unless a responsible officer of the Trustee obtains actual
knowledge of such failure as specified in the Agreement.
The Trustee will be under no obligation to exercise any of the rights or
powers vested in it by the Agreement or to make any investigation of matters
arising thereunder or to institute, conduct or defend any litigation thereunder
or in relation thereto at the request, order or direction of any of the
Certificateholders, unless such Certificateholders have offered the Trustee
reasonable security or indemnity satisfactory to it against the costs, expenses
and liabilities which may be incurred therein or thereby. No Class A
Certificateholder or Class B Certificateholder will have any right under the
Agreement to institute any proceeding with respect to the Agreement, unless such
holder has given the Trustee written notice of default and unless, with respect
to the Class A Certificates, the holders of Class A Certificates evidencing not
less than a majority of the aggregate outstanding principal balance of the Class
A Certificates or, with respect to the Class B Certificates, the holders of
Class B Certificates evidencing not less than a majority of the aggregate
outstanding principal balance of the Class B Certificates, have made a written
request to the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity, and the Trustee
for 30 days has neglected or refused to institute any such proceedings.
THE TRUSTEE
Norwest Bank Minnesota, National Association, a national banking
association, will act as Trustee under the Agreement. The Trustee, in its
individual capacity or otherwise, and any of its affiliates, may hold
Certificates in their own names or as pledgee. In addition, for the purpose of
meeting the legal requirements of certain jurisdictions, the Servicer and the
Trustee, acting jointly (or in some instances, the Trustee, acting alone),
S-34
<PAGE> 35
will have the power to appoint co-trustees or separate trustees of all or any
part of the Trust. In the event of such appointment, all rights, powers, duties
and obligations conferred or imposed upon the Trustee by the Agreement will be
conferred or imposed upon the Trustee and such co-trustee or separate trustee
jointly, or, in any jurisdiction where the Trustee is incompetent or unqualified
to perform certain acts, singly upon such co-trustee or separate trustee who
shall exercise and perform such rights, powers, duties and obligations solely at
the direction of the Trustee.
The Trustee may resign at any time, in which event the Servicer will be
obligated to appoint a successor trustee. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to serve, becomes legally unable to
act, is adjudged insolvent or is placed in receivership or similar proceedings.
In such circumstances, the Servicer will be obligated to appoint a successor
trustee. However, any such resignation or removal of the Trustee and appointment
of a successor trustee will not become effective until acceptance of the
appointment by the successor trustee.
The Agreement will provide that the Servicer will pay the Trustee's fees.
The Agreement will also provide that the Trustee will be entitled to
indemnification by the Depositor for, and will be held harmless against, any
loss, liability or expense incurred by the Trustee not resulting from the
Trustee's own willful misfeasance, bad faith or negligence. Indemnification will
be unavailable to the Trustee to the extent that any such loss, liability or
expense results from a breach of any of the Trustee's representations or
warranties set forth in the Agreement, and for any tax, other than those for
which the Depositor or the Servicer is required to indemnify the Trustee.
The Trustee's Corporate Trust Office is located at Norwest Center, Sixth
Street and Marquette Avenue, Minneapolis, Minnesota 55479-0070. The Depositor,
the Servicer, the Seller and their respective affiliates may have other banking
relationships with the Trustee and its affiliates in the ordinary course of
their business.
In the Agreement, The Chase Manhattan Bank will agree to perform certain
bond administration, distribution obligations and custodial functions on behalf
of the Trustee and to act as successor servicer if Mellon Bank, N.A. is removed
as servicer. In performing such functions, The Chase Manhattan Bank will be
entitled to all of the rights, powers and indemnities afforded to the Trustee
under the Agreement.
FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Certificates, Stroock & Stroock & Lavan LLP,
special tax counsel ("FEDERAL TAX COUNSEL"), will deliver its opinion to the
effect that, under then current law, assuming compliance with the Agreement, the
Trust will be classified for federal income tax purposes as a grantor trust and
not as an association taxable as a corporation. Accordingly, each
Certificateholder will be subject to federal income taxation as if it owned
directly its interest in each asset owned by the Trust and paid directly its
share of expenses paid by the Trust. Certain individuals, estates, trusts and
partnerships may be limited in their ability to fully deduct the expenses of the
Trust. See "Federal Income Tax Consequences" in the Prospectus for a discussion
of those limits.
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<PAGE> 36
For federal income tax purposes, the Depositor will be deemed to have
retained a fixed portion of the interest due on each Receivable (the "SPREAD").
The Spread will be treated as "stripped coupons" within the meaning of Section
1286 of the Internal Revenue Code of 1986, as amended (the "CODE"). The Servicer
may also be deemed to have retained a "stripped coupon" if and to the extent
that the Servicing Fee is determined to be unreasonable. In addition, because
the Class B Pass-Through Rate exceeds the Class A Pass-Through Rate, a portion
of the interest accrued on each Receivable will be treated as a "stripped
coupon" purchased by the Class B Certificateholders. Accordingly, each Class A
Certificateholder will be treated as owning its pro rata percentage interest in
the principal of, and interest payable on, each Receivable (minus the portion of
the interest payable on such Receivable that is treated as Spread, as a stripped
coupon retained by the Servicer or as a stripped coupon purchased by the Class B
Certificateholders), and such interest in each Receivable will be treated as a
"stripped bond" within the meaning of Section 1286 of the Code. Similarly, each
Class B Certificateholder will be treated as owning its pro rata percentage
interest in the principal of each Receivable, plus a disproportionate share of
the interest payable on each Receivable.
CLASS A CERTIFICATEHOLDERS
Because the Class A Certificates represent stripped bonds, they will be
subject to the original issue discount ("OID") rules of the Code. Accordingly,
the tax treatment of a Class A Certificateholder will depend upon whether the
amount of OID on a Class A Certificate is less than a statutorily defined de
minimis amount. See "Federal Income Tax consequences -- Trusts Treated As
Grantor Trusts -- Taxation of Holders If Stripped Bond Rules Apply" for a
discussion regarding the calculation of OID, if any on stripped bonds.
If the amount of OID is de minimis under the OID provisions of the Code,
the Class A Certificates would not be treated as having OID. Each Class A
Certificateholder would be required to report on its federal income tax return
its share of the gross income of the Trust, including interest and certain other
charges accrued on the Receivables and any gain upon collection or disposition
of the Receivables (but not including any portion of the Receivables treated as
"stripped coupons" as described above that are treated as owned by other
parties). Such gross income attributable to interest on the Receivable would
exceed the Class A Pass-Through Rate by an amount equal to the Class A
Certificateholder's share of the expenses of the Trust for the period during
which it owns a Class A Certificate. As indicated above, a Class A
Certificateholder generally would be entitled to deduct its share of expenses of
the Trust, subject to certain limitations that apply in the case of
Certificateholders that are individuals, trusts, estates or partnerships. Any
amounts received by a Class A Certificateholder from the Reserve Account or from
the subordination of the Class B Certificates will be treated for federal income
tax purposes as having the same character as the payments they replace. A Class
A Certificateholder would report its share of the income of the Trust under its
usual method of accounting. Accordingly, interest would be includable in a
Certificateholder's gross income when it accrues on the Receivables, or, in the
case of Certificateholders who are cash basis taxpayers, when received by the
Servicer on behalf of Certificateholders. The actual amount
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<PAGE> 37
of discount on a Receivable would be includable in income as principal payments
are received on the Receivables.
If OID relating to a Class A Certificate is not de minimis, a Class A
Certificateholder will be required to include in income, in addition to the
amounts described above, any OID as it accrues, regardless of when cash payments
are received, using a method reflecting a constant yield on the Receivables.
Although the Trustee intends to account for OID, if any, reportable by
holders of Class A Certificates by reference to the price paid for a Class A
Certificate by an initial purchaser, the amount of OID will differ for
subsequent purchasers. Such subsequent purchasers should consult their tax
advisers regarding the proper calculation of OID on the interest in the
Receivables represented by a Class A Certificate.
CLASS B CERTIFICATEHOLDERS
In General. Except as described below, it is believed that the Class B
Certificateholders will be subject to tax in the same manner as Class A
Certificateholders. However, no federal income tax authorities address the
precise method of taxation of an instrument such as the Class B Certificates and
Federal Tax Counsel cannot opine on this issue. In the absence of applicable
authorities, the Trustee intends to report income to Class B Certificateholders
in the manner described below.
Each Class B Certificateholder will be treated as owning (i) the Class B
Percentage of each Receivable plus (ii) a disproportionate portion of the
interest on each Receivable (not including the Spread). Income will be reported
to a Class B Certificateholder based on the assumption that all amounts payable
to the Class B Certificateholders are taxable under the coupon stripping
provisions of the Code and treated as a single obligation. In applying those
provisions, the Trustee will take the position that a Class B
Certificateholder's entire share of the interest on a Receivable will qualify as
"qualified stated interest." Thus, except to the extent modified by the effects
of subordination of the Class B Certificates, as described below, income will be
reported to Class B Certificateholders in the manner described above for holders
of the Class A Certificates.
EFFECT OF SUBORDINATION
If the Certificateholders of one Class of Certificates receive
distributions of less than their share of the Trust's receipts of principal or
interest (the "SHORTFALL AMOUNT") because of the subordination of the
Certificates, it is believed that such Certificateholders would probably be
treated for federal income tax purposes as if they had:
(1) received as distributions their full share of such receipts,
(2) paid over to the Certificateholders of the other Class of
Certificates an amount equal to such Shortfall Amount, and
(3) retained the right to reimbursement of such amounts to the extent
of future collections otherwise available for deposit in the Reserve
Account.
However, Federal Tax Counsel cannot opine to such treatment.
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<PAGE> 38
Under this treatment,
(x) Class B Certificateholders would be required to accrue as current
income any interest, OID income, or (to the extent paid on the Receivables)
accrued market discount of the Trust that was a component of the Shortfall
Amount, even though such amount was in fact paid to the Class A
Certificateholders,
(y) a loss would only be allowed to the Class B Certificateholders when
their right to receive reimbursement of such Shortfall Amount became
worthless (i.e., when it became clear that that amount would not be
available from any source to reimburse such loss), and
(z) reimbursement of such Shortfall Amount prior to such a claim of
worthlessness would not be taxable income to Class B Certificateholders
because such amount was previously included in income. Similarly, a loss
would only be allowed to the Class A Certificateholders when their right to
receive reimbursement of such Shortfall Amount became worthless. Those
results should not significantly affect the inclusion of income for Class B
Certificateholders on the accrual method of accounting, but could
accelerate inclusion of income to Class B Certificateholders on the cash
method of accounting by, in effect, placing them on the accrual method.
Moreover, the character and timing of loss deductions is unclear and all
Class B Certificateholders are encouraged to consult their tax advisors
regarding such character and timing.
All Certificateholders should see "Federal Income Tax Consequences" in the
Prospectus for a more detailed discussion of the material federal income tax
consequence of the purchase, ownership and disposition of the Certificates.
STATE AND LOCAL TAX CONSEQUENCES
The discussion under "Federal Income Tax Consequences" above does not
address the tax consequences of purchase, ownership or disposition of the
Certificates under any state or local tax law. We recommend that investors
consult their own tax advisors regarding state and local tax consequences.
ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing, retirement or other employee
benefit plan subject to Title I of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), should consider the fiduciary standards under
ERISA in the context of the plan's particular circumstances before authorizing
an investment of a portion of such plan's assets in the Certificates.
Accordingly, pursuant to Section 404 of ERISA, such fiduciary should consider
among other factors:
(1) whether the investment is for the exclusive benefit of plan
participants and their beneficiaries;
(2) whether the investment satisfies the applicable diversification
requirements;
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<PAGE> 39
(3) whether the investment is in accordance with the documents and
instruments governing the plan; and
(4) whether the investment is prudent, considering the nature of the
investment. Fiduciaries of plans also should consider ERISA's prohibition
on improper delegation of control over, or responsibility for, plan assets.
In addition, benefit plans subject to ERISA, as well as individual
retirement accounts or certain types of Keogh plans not subject to ERISA but
subject to Section 4975 of the Code and any entity whose source of funds for the
purchase of Certificates includes plan assets by reason of a plan or account
investing in such entity (each, a "PLAN"), are prohibited from engaging in a
broad range of transactions involving Plan assets and persons having certain
specified relationships to a Plan ("PARTIES IN INTEREST" and "DISQUALIFIED
PERSONS"). Such transactions are treated as "prohibited transactions" under
Sections 406 and 407 of ERISA and excise taxes are imposed upon such persons by
Section 4975 of the Code.
An investment in Certificates by a Plan might result in the assets of the
Trust being deemed to constitute Plan assets, which in turn might mean that
certain aspects of such investment, including the operation of the Trust, might
be prohibited transactions under ERISA and the Code. Neither ERISA nor the Code
defines the term "plan assets." Under Section 2510.3-101 of the United States
Department of Labor ("DOL") regulations (the "REGULATION"), a Plan's assets may
include an interest in the underlying assets of an entity (such as a trust) for
certain purposes, including the prohibited transaction provisions of ERISA and
the Code, if the Plan acquires an "equity interest" in such entity, unless
certain exceptions apply. The Depositor believes that the Certificates will give
Certificateholders an equity interest in the Trust for purposes of the
Regulation and can give no assurance that the Certificates will qualify for any
of the exceptions under the Regulation. As a result, the assets of the Trust may
be considered the assets of any Plan which acquires a Certificate.
The DOL has issued an individual exemption, Prohibited Transaction
Exemption ("PTE") 90-31 55 Fed. Reg. 23,145 (June 6, 1990) to The Chase
Manhattan Bank and its affiliates, including Chase Securities Inc. (the
"EXEMPTION"). The Exemption generally exempts from the application of the
prohibited transaction provisions of Section 406 of ERISA and the excise taxes
imposed on such prohibited transactions pursuant to Section 4975(a) and (b) of
the Code and Section 502(i) of ERISA certain transactions relating to the
initial purchase, holding and subsequent resale by Plans of certificates in
pass-through trusts that consist of certain receivables, loans and other
obligations that meet the conditions and requirements set forth in the
Exemption. The receivables covered by the Exemption include motor vehicle
installment obligations such as the Receivables. The Depositor believes that the
Exemption will apply to the acquisition, holding and resale of the Class A
Certificates by a Plan and that all conditions of the Exemption other than those
within the control of the investors have been or will be met.
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<PAGE> 40
The Exemption sets forth six general conditions that must be satisfied for
a transaction involving the acquisition of the Class A Certificates by a Plan to
be eligible for the exemptive relief thereunder:
(1) the acquisition of the Class A Certificates by a Plan is on terms
(including the price for the Class A Certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) the rights and interests evidenced by the Class A Certificates
acquired by a Plan are not subordinated to the rights and interest
evidenced by other certificates of the Trust;
(3) the Class A Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from any one of four rating entities;
(4) the Trustee is not an affiliate of any other member of the
"RESTRICTED GROUP," which consists of the Underwriters, the Depositor, the
Trustee, the Servicer, each subservicer, and any Obligor with respect to
the Receivables included in the Trust constituting more than 5% of the
aggregate unamortized principal balance of the assets of the Trust as of
the date of initial issuance of the Class A Certificates, and any affiliate
of such parties.
(5) the sum of all payments made to and retained by the Underwriters in
connection with the offering of the Class A Certificates represents not
more than reasonable compensation for placing the Class A Certificates. The
sum of all payments made to and retained by the Servicer represents not
more than the reasonable compensation for the Servicer's services under the
Agreement and reimbursement of the Servicer's reasonable expenses in
connection therewith; and
(6) the Plan investing in the Class A Certificates must be an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission (the "COMMISSION") under the Securities
Act.
Because the rights and interests evidenced by the Class A Certificates
acquired by a Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust, the second general condition set forth above is
satisfied. It is a condition of the issuance of the Class A Certificates that
they be rated in the highest rating category by a nationally recognized rating
agency and thus the third general condition should be satisfied. The Depositor
and the Servicer expect that the fourth general condition set forth above will
be satisfied with respect to the Class A Certificates. A fiduciary of a Plan
contemplating purchasing a Class A certificate must make its own determination
that the first, fifth and sixth general conditions set forth above will be
satisfied with respect to the Class A Certificates.
If the general conditions of the Exemption are satisfied, the Exemption may
provide relief from the restrictions imposed by Sections 406(a) and 407(a) of
ERISA as well as the excise taxes imposed by Section 4975(a) and (b) of the Code
by reason of Section 4975(c)(1)(A) through (D) of the Code, in connection with
the direct or indirect sale,
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<PAGE> 41
exchange, transfer or holding of the Class A Certificates by a Plan. However, no
exemption is provided from the restrictions of Sections 406(a)(1)(E), 406(a)(2)
and 407 of ERISA for the acquisition or holding of a Class A Certificate on
behalf of an "Excluded Plan" by any person who has discretionary authority or
renders investment advice with respect to the assets of such Excluded Plan. For
purposes of the Class A Certificates an Excluded Plan is a Plan sponsored by any
member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide relief from the restrictions imposed by Sections 406(b)(l)
and (b)(2) and 407(a) of ERISA and the taxes imposed by Section 4975(a) and (b)
of the Code by reason of Section 4975(c)(1)(E) of the Code in connection with
the direct or indirect sale, exchange, transfer or holding of Class A
Certificates in the initial issuance of Class A Certificates between the
Depositor or the Underwriters and a Plan other than an Excluded Plan when the
person who has discretionary authority or renders investment advice with respect
to the investment of Plan assets in the Class A Certificates is (a) an Obligor
with respect to 5% or less of the fair market value of the Receivables or (b) an
affiliate of such person.
The Exemption also may provide relief from the restriction imposed by
Sections 406(a) and 407(a) of ERISA and the taxes imposed by Section
4975(c)(1)(A) through (D) of the Code if such restrictions are deemed to
otherwise apply merely because a person is deemed to be a party in interest or a
disqualified person with respect to an investing Plan by virtue of providing
services to a Plan (or by virtue of having certain specified relationships to
such a person) solely as a result of such Plan's ownership of Class A
Certificates.
Before purchasing a Class A Certificate, a fiduciary of a Plan should
itself confirm (a) that the Class A Certificates constitute "certificates" for
purposes of the Exemption and (b) that the specific conditions set forth in
Section II of the Exemption and the other requirements set forth in the
Exemption will be satisfied.
Any Plan fiduciary considering whether to purchase a Class A Certificate on
behalf of a Plan are encouraged to consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment.
Because the Class B Certificates are subordinate interests, the Exemption
will not be available for Class B Certificates. Accordingly, no Class B
Certificate may be purchased by or otherwise transferred to a Plan other than an
"insurance company general account" as defined in, and which complies with the
provisions of, PTE 95-60 which may be deemed to be holding Plan assets.
Furthermore, each purchaser of Class B Certificates will be deemed to have
represented that it is not acquiring Class B Certificates, directly or
indirectly, for or on behalf of a Plan other than an "insurance company general
account" as defined in, and which complies with the provisions of, PTE 95-60. If
Definitive Certificates are issued, each transferee of a Class B Certificate
will be required to deliver to the Trustee a certificate to such effect. Any
purchaser whose source of funds for the purchase of Class B Certificates
includes such assets of an insurance company general account should itself
confirm that all applicable requirements set forth in PTE 95-60 will be
satisfied, particularly the requirement (set forth in Section IV(c) of PTE
95-60) that
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<PAGE> 42
neither the insurance company nor an affiliate thereof will be a party in
interest or disqualified person in connection with the purchase and holding of
Class B Certificates or the servicing, management and operation of the Trust.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting agreement
relating to the Certificates (the "UNDERWRITING AGREEMENT"), the Depositor has
agreed to sell to Chase Securities Inc. and Mellon Financial Markets, Inc.
(together, the "UNDERWRITERS"), and each of the Underwriters has severally
agreed to purchase, the principal amount of Class A Certificates and Class B
Certificates set forth opposite its name below, subject to the satisfaction of
certain conditions precedent.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF
UNDERWRITER CLASS A CERTIFICATES CLASS B CERTIFICATES
----------- ------------------------ ------------------------
<S> <C> <C>
Chase Securities Inc................................. $153,871,000.00 $4,758,500.00
Mellon Financial Markets, Inc........................ $153,870,000.00 $4,759,387.13
--------------- -------------
Total........................................... $307,741,000.00 $9,517,887.13
=============== =============
</TABLE>
The Depositor has been advised by the Underwriters that the Underwriters
propose to offer the Certificates to the public initially at the public offering
prices set forth on the cover page of this Prospectus, and to certain dealers at
such prices less a concession of 0.150% per Class A Certificate and 0.250% per
Class B Certificate; that the Underwriters and such dealers may allow a discount
of 0.125% per Class A Certificate and 0.125% per Class B Certificate on the sale
to certain other dealers; and that after the initial public offering of the
Certificates, the public offering prices and the concessions and discounts to
dealers may be changed by the Underwriters.
Until the distribution of the Certificates is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Certificates. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the prices of the Certificates. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of such Certificates.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Depositor nor either Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Certificates. In addition, neither
the Depositor nor either Underwriter makes any representation that either
Underwriter will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Mellon Financial Markets, Inc. is an affiliate of the Depositor and the
Seller.
This Prospectus Supplement may be used by Mellon Financial Services, Inc.,
an affiliate of the Depositor, in connection with offers and sales relating to
market-making
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<PAGE> 43
transactions in the Certificates in which Mellon Financial Services, Inc. acts
as principal. Mellon Financial Services, Inc. may also act as agent in such
transactions. Sales will be made at prices related to the prevailing prices at
the time of sale.
The Depositor has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or contribute
to payments which the Underwriters may be required to make in respect thereof.
In the opinion of the Commission, such indemnification is against public policy
as expressed in the Securities Act and, may, therefore, be unenforceable.
The Trustee or the Collateral Agent, as applicable, may, from time to time,
invest the funds in the Trust Accounts in Eligible Investments acquired from
either of the Underwriters.
RATINGS
It is a condition to the issuance of the Class A Certificates that the
Class A Certificates be rated "AAA" by Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. ("S&P") and "Aaa" by Moody's
Investors Service, Inc. ("MOODY'S") (each, a "RATING AGENCY"). It is a condition
to the issuance of the Class B Certificates that the Class B Certificates be
rated at least "A+" by S&P and "A3" by Moody's. The ratings of the Class A
Certificates will be based primarily on the Receivables, the Reserve Account,
and the terms of the Certificates, including the subordination provided by the
Class B Certificates. The ratings of the Class B Certificates will be based
primarily on the Receivables and the Reserve Account. The ratings of the
Certificates should be evaluated independently from similar ratings on other
types of securities. The ratings do not address the possibility that
Certificateholders may suffer a lower than anticipated yield.
There can be no assurance that any rating will remain in effect for any
given period of time or that a rating will not be lowered or withdrawn by the
assigning Rating Agency if, in its judgment, circumstances so warrant. In the
event that the rating initially assigned to any of the Certificates is
subsequently lowered or withdrawn for any reason, no person or entity will be
obligated to provide any additional credit enhancement with respect to such
Certificates. There can be no assurance whether any other rating agency will
rate any of the Certificates, or if one does, what rating would be assigned by
any such other rating agency. A security rating is not a recommendation to buy,
sell or hold securities.
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<PAGE> 44
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed upon
for the Depositor by Carl Krasik, Esq., Associate General Counsel of Mellon Bank
Corporation (the "Corporation"). Mr. Krasik is also a shareholder of the
Corporation and one of its subsidiaries and holds options to purchase additional
shares of the Corporation's Common Stock. Certain legal matters with respect to
the Certificates will be passed upon for the Underwriters by Stroock & Stroock &
Lavan LLP, New York, New York. Stroock & Stroock & Lavan LLP also will pass upon
the material federal income tax consequences related to the Certificates.
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<PAGE> 45
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 46
PROSPECTUS
$2,000,000,000
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
------------------------------
MELLON AUTO RECEIVABLES CORPORATION
DEPOSITOR
------------------------------
MELLON BANK, N.A.
SERVICER
------------------------------
SECURITIES OFFERED
- asset backed notes, asset
backed certificates or a
combination
- rated in one of four highest
rating categories by at least
one rationally recognized
rating organization
- not listed on any trading
exchange
- obligations only of the related
trust
ASSETS
- retail automobile receivables
- may include one or more forms
of enhancement
You should carefully consider
the risk factors beginning on
page 2.
The securities are not bank
deposits and are not insured
by the Federal Deposit
Insurance Corporation.
This prospectus must be
accompanied by a prospectus
supplement for the particular
series.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. MAKING ANY CONTRARY REPRESENTATION IS A
CRIMINAL OFFENSE.
The depositor may offer securities through underwriters or by other methods
described under the caption "Method of Distribution."
The date of this Prospectus is April 16, 1999
<PAGE> 47
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT.
We provide information to you about the securities in two separate
documents that provide progressively more detail:
- this prospectus, which provides general information, some of which may
not apply to your series of securities; and
- the accompanying prospectus supplement, which describes the specific
terms of your series of securities.
YOU SHOULD RELY PRIMARILY ON THE DESCRIPTION OF YOUR SECURITIES IN THE
ACCOMPANYING PROSPECTUS SUPPLEMENT. THIS PROSPECTUS MAY NOT BE USED TO
CONSUMMATE SALES OF ANY OF THE SECURITIES UNLESS IT IS ACCOMPANIED BY A
PROSPECTUS SUPPLEMENT RELATING TO THE SECURITIES BEING SOLD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<S> <C>
Risk Factors................................................ 2
Incorporation of Certain Documents by Reference............. 6
The Trusts.................................................. 7
The Portfolio of Motor Vehicle Loans........................ 9
The Receivables Pools....................................... 13
Maturity and Prepayment Assumptions......................... 14
Pool Factors and Trading Information........................ 17
Use of Proceeds............................................. 17
The Depositor............................................... 17
The Servicer................................................ 19
Description of the Notes.................................... 19
Description of the Certificates............................. 27
Certain Information Regarding the Securities................ 28
Description of the Transfer and Servicing Agreements........ 43
Certain Legal Aspects of the Receivables.................... 60
Federal Income Tax Consequences............................. 66
Trusts Characterized as Partnerships or Divisions........... 67
Trust Treated as Grantor Trusts............................. 75
FASIT Legislation........................................... 83
State and Local Tax Consequences............................ 84
ERISA Considerations........................................ 84
Ratings..................................................... 89
Method of Distribution...................................... 89
Legal Opinions.............................................. 90
Index of Principal Defined Terms............................ 91
Annex I..................................................... 94
</TABLE>
<PAGE> 48
RISK FACTORS
An investment in the securities of any series involves significant risks.
Before making an investment decision, we recommend that you carefully review the
following information and the information under the caption "Risk Factors" in
the applicable prospectus supplement.
IF THE TRUST ASSETS ARE INSUFFICIENT TO MAKE PAYMENTS ON THE SECURITIES, YOU
WILL INCUR A LOSS
No trust will have any significant assets or sources of funds other than
the receivables and the credit enhancement identified in the related prospectus
supplement. The issuing trust will be the only person obligated to make payments
on the securities issued by that trust. You will not have any recourse against
the depositor, the seller, the servicer, the trustee, the indenture trustee or
any related company if the assets of a trust are not sufficient to make the
required payments on the securities issued by that trust. As a result, you must
depend on payments by the obligors on the receivables and any related credit
enhancement for required payments on your securities. Any credit enhancement
will not cover all contingencies, and losses in excess of the coverage provided
by that credit enhancement will be borne directly by the affected
securityholders.
THE TRUST'S INTEREST IN THE RECEIVABLES COULD BE DEFEATED BECAUSE THE CONTRACTS
WILL NOT BE DELIVERED
The contracts creating the receivables in each receivables pool will not be
actually delivered to the trustee or indenture trustee. The contracts will be
held by the servicer, as custodian for the trust. In addition, the contracts
will not be segregated, stamped or otherwise marked to indicate that they have
been sold to the applicable trust. If, through inadvertence or otherwise,
another party purchases or takes a security interest in the related receivables
for new value in the ordinary course of business and takes possession of the
related contracts without actual knowledge of the applicable trust's interest,
the purchaser or secured party will acquire an interest in the related
receivables superior to the interest of that trust. In that event, the
applicable trust will not be able to realize any liquidation proceeds on the
related receivables and securityholders may suffer a loss.
THE TRUST'S SECURITY INTEREST IN THE FINANCED VEHICLES WILL NOT BE NOTED ON THE
CERTIFICATES OF TITLE WHICH MAY CAUSE LOSSES
Due to the administrative burden and expense, the certificates of title or
ownership will not be endorsed or otherwise amended to identify the trust as the
new secured party. In most states, in the absence of fraud, forgery, negligence
or error, the notation of the seller's lien on the certificates of title or
ownership and/or possession of such certificates with such notation will be
sufficient to protect the related trust against the rights of subsequent
purchasers of a financed vehicle or subsequent lenders who take a security
interest in a financed vehicle. However, if the trust or the related indenture
trustee is not identified as the new secured party on the certificate of title,
the security interest of the trust or related indenture trustee may not be
enforceable. If a trust has failed to obtain or
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<PAGE> 49
maintain a perfected security interest in a financed vehicle, its security
interest would be subordinate to, among others, a bankruptcy trustee of the
obligor, a subsequent purchaser of the financed vehicle or a holder of a
perfected security interest in the financed vehicle or a bankruptcy trustee of
such holder. If the trust elects to attempt to repossess the related financed
vehicles, it might not be able to realize any liquidation proceeds on those
financed vehicles and, as a result, securityholders may suffer a loss.
IF THE DEPOSITOR BECOMES BANKRUPT, DISTRIBUTIONS ON THE SECURITIES MAY BE
DELAYED OR REDUCED
The depositor intends that its sale of the receivables to each trust will
be a valid sale and assignment of the receivables to that trust. If the
depositor were to become a debtor in a bankruptcy case and a creditor or
trustee-in-bankruptcy of the depositor or the depositor itself were to take the
position that the sale of receivables by the depositor to a trust should instead
be treated as a pledge of the receivables to secure a borrowing of such debtor,
delays in payments of collections of receivables to the related securityholders
could occur. If a court ruled in favor of any such trustee, debtor or creditor,
reductions in the amounts of such payments could result. If the transfer of
receivables to a trust is treated as a pledge instead of a sale, a tax or
government lien on the property of the depositor arising before the transfer of
a receivable to the trust may have priority over that trust's interest in those
receivables. If the transactions are treated as a sale, the receivables would
not be part of the depositor's bankruptcy estate and would not be available to
the depositor's creditors.
SUBORDINATED SECURITIES WILL ABSORB LOSSES AND CASH FLOW SHORTFALLS BEFORE MORE
SENIOR SECURITIES
A series of securities may provide that one or more classes of those
securities are subordinated in right of payment to one or more other classes of
that series. In general, securities that are subordinated to other securities
have a greater risk of loss because the subordinated securities will not receive
payments of interest, principal or both, until the more senior securities
receive the payments to which they are entitled. If the amount available for
payments to securityholders is less than the amount required, the holders of the
subordinated securities will not receive the payments that they would have
received if there had not been a shortfall in the amount available.
CREDIT ENHANCEMENT MAY BE LIMITED AND NOT PROTECT YOU FROM ALL LOSSES
An investment in the securities also involves a risk that you may lose all
or part of your investment. Although every trust will include some form of
credit enhancement, that credit enhancement may not cover every class of
securities issued by a trust. In addition, every form of credit enhancement will
have certain limitations on, and exclusions from, coverage. No securities will
be guaranteed by any governmental entity or agency or insured by the Federal
Deposit Insurance Corporation. As a result, there is always a risk that you may
not recover the full amount of your investment.
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<PAGE> 50
HOLDERS OF STRIP SECURITIES MAY NOT RECOVER THEIR INITIAL INVESTMENTS
Strip notes or strip certificates involve greater uncertainty regarding the
return on investment. These types of securities are often called "interest only
securities" or "principal only securities". An interest only security is not
entitled to any principal payments. If the receivables in a receivables pool
prepay at rapid rates, it will reduce the amount of interest available to pay a
related interest only security and may cause an investor in that interest only
security to fail to recover the investor's initial investment.
A principal only security is not entitled to any interest payments, and is
usually sold at a price that is less than the face amount of the security. If an
investor in a principal only security receives payments on the security at a
slow rate, the return on the investment will be low because, in part, there is
no interest payments to compensate the investor for the use of the investor's
money.
The prices offered by potential purchasers for interest only securities and
principal only securities vary significantly from time to time, and there may be
times when no potential purchaser is willing to buy an interest only security or
principal only security. As a result, an investment in strip notes and strip
certificates involves a high degree of risk.
IF THE SERVICER COMMINGLES FUNDS AND BECOMES BANKRUPT, DISTRIBUTIONS MAY BE
DELAYED OR REDUCED
So long as Mellon Bank, N.A. is the servicer, and provided that (1) there
is no servicer default and (2) each other condition to making monthly deposits
as may be specified by the rating agencies and described in the related
prospectus supplement is satisfied, the servicer will not be required to deposit
amounts collected on the receivables into the collection account of a trust
until the business day preceding each distribution date. Pending deposit into a
collection account, the servicer may use the amounts collected for its own
businesses purposes. The servicer will be obligated to account for the monies
collected and to deposit the amount of those collections in the collection
account. However, if the servicer fails to deposit those amounts as required,
the applicable securityholders might incur a loss.
CERTIFICATEHOLDERS WILL NOT BE ABLE TO EXERCISE REMEDIES FOR A SERVICER DEFAULT
IF NOTES HAVE BEEN ISSUED AND ARE OUTSTANDING
If a series of securities includes notes and a servicer default occurs, the
indenture trustee or the noteholders may remove the servicer without the consent
of the trustee or any of the certificateholders. Moreover, only the indenture
trustee or the noteholders, and not the certificateholders, with respect to the
applicable series will have the ability to remove the servicer if a servicer
default occurs. In addition, the noteholders of that series have the ability,
with certain specified exceptions, to waive defaults by the servicer, including
defaults that could materially and adversely affect the certificateholders of
that series.
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<PAGE> 51
IF A TRUST ESTATE IS LIQUIDATED AFTER AN EVENT OF DEFAULT, THE PROCEEDS MAY BE
INSUFFICIENT TO PAY THE SECURITIES IN FULL
Although each trust will covenant to sell the related receivables if
directed to do so by the related indenture trustee following an acceleration of
the related notes upon an event of default, the market value of those
receivables may not be equal to or greater than the aggregate outstanding
principal of those notes. Thus, those noteholders may not have an effective
remedy because the sale of the related receivables might result in losses. In
addition, the amount of principal required to be distributed to noteholders
under the indenture is generally limited to amounts available to be deposited in
the applicable note distribution account. Therefore, the failure to pay
principal on a class of the notes of a series may not result in the occurrence
of an event of default until the final scheduled distribution date for that
class of notes.
LEGAL OPINIONS ON CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF INVESTING
IN THE SECURITIES CANNOT BE RENDERED DUE TO UNCERTAINTIES IN THE LAW
The securities are complex instruments, and there is little guidance as to
the federal income tax treatment of certain features. For example, special
federal tax counsel is unable to render an opinion as to the federal income tax
treatment of stripped bonds issued by a grantor trust or whether interest
payable on certificates treated as debt constitutes qualified stated interest.
Even where an opinion of counsel is rendered, that opinion will not be binding
on the Internal Revenue Service or the courts and will not guarantee a specific
result. We recommend that you consider an investment in the securities only
after you and your tax advisors have fully analyzed the federal, state and local
income tax consequences of the investment in light of your own tax situation.
5
<PAGE> 52
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Depositor, as creator of each Trust, has filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Notes and the Certificates offered
pursuant to this Prospectus. The Registration Statement includes information
about the Securities which is not included in this Prospectus. Prospective
investors may read the Registration Statement and make copies of it at the
Commission's main office located at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the Commission's regional offices located at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and Seven World
Trade Center, New York, New York 10048. Prospective investors also may obtain a
copy of the Registration Statement by paying a fee set by the Commission and
requesting a copy from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Prospective
investors who have access to the Internet also may read the Registration
Statement at the Commission's site on the World Wide Web located at
http://www.sec.gov.
Each Trust will be required to file with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (i) a Current Report on Form 8-K each month after the month
of formation of that Trust and prior to the expiration of the calendar year in
which such Trust was formed and (ii) an annual report on Form 10-K within 90
days after the end of the calendar year in which such Trust was formed. Each
Form 8-K will include as an exhibit the monthly statement to Securityholders of
the related Series. The Form 10-K will include certain summary information about
the Trust. Any reports and documents so filed by or on behalf of a Trust before
the termination of the offering of the Securities of that Trust will be
incorporated in this Prospectus. If the information incorporated in this
Prospectus modifies or changes the information in this Prospectus such modified
or changed information will control if any information incorporated by reference
in this Prospectus is itself modified or changed by subsequent information
incorporated by reference, such latter information will control. Any reports and
documents that are incorporated in this Prospectus will not be physically
included in this Prospectus or delivered with this Prospectus.
The Servicer will provide without charge to each person, including any
beneficial owner of Securities, to whom a copy of this Prospectus is delivered,
on the written or oral request of any such person, a copy of any or all of the
documents incorporated in this Prospectus or in any related Prospectus
Supplement (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference in such documents). Written requests for
such copies should be directed to Mellon Bank, N.A. at Two Mellon Bank Center,
8th Floor, Pittsburgh, Pennsylvania 15258 Attention: Asset Backed Finance.
Telephone requests for such copies should be directed to the Servicer, at (412)
236-6559. IN ORDER TO RECEIVE ANY REQUESTED INFORMATION IN A TIMELY FASHION,
PROSPECTIVE INVESTORS MUST MAKE THEIR REQUESTS NO LATER THAN FIVE BUSINESS DAYS
BEFORE THEY MUST MAKE THEIR INVESTMENT DECISIONS.
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<PAGE> 53
The Exchange Act and the rules and regulations of the Commission permit
each Trust to terminate its obligation to file reports and documents with the
Commission following the end of the calendar year in which that such Trust is
formed. The Depositor expects that each Trust will terminate its filing
obligation as soon as it is permitted to do so.
THE TRUSTS
With respect to each Series of Securities, the Depositor will cause a
separate Trust to be formed pursuant to the respective Trust Agreement or
Pooling and Servicing Agreement, as applicable, for the transactions described
herein and in the related Prospectus Supplement. The property of each Trust will
include a pool (a "Receivables Pool") of motor vehicle retail installment sales
contracts and other motor vehicle installment chattel paper which were or will
be originated by Dealers and purchased by a Seller pursuant to the Dealer
Agreements and all monies received thereunder on and after the Cutoff Date (as
such term is defined in the related Prospectus Supplement, a "Cutoff Date"),
and, with respect to Receivables which are Actuarial Receivables, monies
received thereunder prior to the Cutoff Date that are due on or after the Cutoff
Date.
"Actuarial Receivables" are receivables that provide for the amortization
of the amount financed over a series of fixed, level monthly installments. Each
monthly installment, including the monthly installment representing the final
payment on the Receivable, consists of an amount of interest equal to 1/12 of
the Annual Percentage Rate (the "APR") of the amount financed multiplied by the
unpaid principal balance of the amount financed, and an amount of principal
equal to the remainder of the monthly payment.
On or prior to the Closing Date, the Seller(s) will sell the Receivables of
the applicable Receivables Pool to the Depositor. On the applicable Closing
Date, the Depositor will sell the Initial Receivables of the applicable
Receivables Pool to the Trust. To the extent so provided in the related
Prospectus Supplement, Subsequent Receivables will be conveyed to the Trust as
frequently as daily during the Funding Period. Any Subsequent Receivables so
conveyed will also be assets of the applicable Trust, subject to the prior
rights of the related Indenture Trustee and the Noteholders, if any, therein.
The property of each Trust will also include:
- such amounts as from time to time may be held in separate trust accounts
established and maintained pursuant to the related Sale and Servicing
Agreement or Pooling and Servicing Agreement, as described herein and in
the related Prospectus Supplement;
- security interests in the vehicles securing the Receivables (the
"Financed Vehicles");
- the rights of the Seller(s) to receive proceeds from claims under
certain insurance policies;
- the rights of the Trust under either a Sale and Servicing Agreement or a
Pooling and Servicing Agreement, as specified in the related Prospectus
Supplement;
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<PAGE> 54
- the rights of the Seller(s) to refunds for the costs of extended service
contracts and to refunds of unearned premiums with respect to credit
life and credit accident and health insurance policies covering the
Financed Vehicles or the retail purchasers of, or other persons owing
payments on, the Financed Vehicles (the "Obligors");
- all right, title and interest of the Seller(s) (other than with respect
to any Dealer commission) with respect to the Receivables under the
related Dealer Agreements; and
- all proceeds (within the meaning of the UCC) of the foregoing.
To the extent specified in the related Prospectus Supplement, a Pre-Funding
Account, a Reserve Account or other form of credit enhancement may be a part of
the property of any given Trust or may be held by the Trustee or an Indenture
Trustee for the benefit of holders of the related Securities.
The Servicer will service the Receivables held by each Trust and will
receive fees for such services. See "Description of the Transfer and Servicing
Agreements -- Servicing Compensation and Payment of Expenses" herein. To
facilitate the servicing of the Receivables, each Trustee will authorize the
Servicer to retain physical possession of the Receivables held by each Trust and
other documents relating thereto as custodian for each such Trust. Due to the
administrative burden and expense, the certificates of title to the Financed
Vehicles will not be amended to reflect the sale and assignment of the security
interest in the Financed Vehicles to each Trust. In the absence of such an
amendment, any Trust may not have a perfected security interest in the Financed
Vehicles in all states. See "Risk Factors -- Failure to Note Transfer on Title
Documents May Cause Losses," "Certain Legal Aspects of the Receivables" and
"Description of the Transfer and Servicing Agreements -- Sale and Assignment of
Receivables."
If the protection provided to any Noteholders of a given Series by the
subordination of the related Certificates and by the Reserve Account, if any, or
other credit enhancement for such Series or the protection provided to
Certificateholders by any such Reserve Account or other credit enhancement is
insufficient, such Noteholders or Certificateholders, as the case may be, would
have to look principally to the Obligors on the related Receivables, the
proceeds from the repossession and sale of Financed Vehicles which secure
defaulted Receivables and the proceeds from any recourse against Dealers with
respect to such Receivables. In such event, certain factors, such as the
applicable Trust's not having perfected security interests in the Financed
Vehicles in all states, may affect the Servicer's ability to repossess and sell
the collateral securing the Receivables, and thus may reduce the proceeds to be
distributed to the holders of the Securities of such Series. See "Description of
the Transfer and Servicing Agreements Distributions," "-- Credit and Cash Flow
Enhancement" and "Certain Legal Aspects of the Receivables." The principal
offices of each Trust and the related Trustee will be specified in the
applicable Prospectus Supplement.
If so specified in the related Prospectus Supplement, a Trust may make an
election to be treated as a "financial asset securitization investment trust" (a
"FASIT"). The applicable Transfer and Servicing Agreement for such a Trust may
contain any such terms and provide for the issuance of Notes or Certificates of
such Series on such terms and
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conditions as are permitted to a FASIT and described in the related Prospectus
Supplement. See "Federal Income Tax Consequences -- FASIT Legislation."
THE TRUSTEE
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale of
the related Securities is limited solely to the expressed obligations of such
Trustee set forth in the related Trust Agreement or the related Pooling and
Servicing Agreement, as applicable. A Trustee may resign at any time, in which
event the Servicer, or its successor, will be obligated to appoint a successor
trustee. The Servicer may also remove the Trustee if the Trustee ceases to be
eligible to continue as Trustee under the related Trust Agreement or Pooling and
Servicing Agreement, as applicable, or if the Trustee becomes legally unable to
act, is judged insolvent or is placed in receivership or similar proceedings. In
such circumstances, the Servicer, will be obligated to appoint a successor
trustee. Any resignation or removal of a Trustee and appointment of a successor
trustee will not become effective until acceptance of the appointment by the
successor trustee.
THE PORTFOLIO OF MOTOR VEHICLE LOANS
DEALER AGREEMENTS
Mellon Bank, N.A. (the "Bank") purchases through Dealers motor vehicle
retail installment sales contracts and other installment chattel paper secured
by Financed Vehicles ("Motor Vehicle Loans") . The Bank purchases Motor Vehicle
Loans in accordance with its established underwriting procedures and subject to
the terms of the Dealer Agreements. A Dealer Agreement, among other things,
obligates a Dealer to repurchase any Receivable for its outstanding principal
balance (including accrued but unpaid interest) if the Dealer breaches the
representations and warranties contained therein. The representations and
warranties typically relate to the origination of the Receivable and the
security interest in the related Financed Vehicle and not to the collectibility
of the Receivable or the creditworthiness of the Obligor thereunder.
The Bank audits the Dealers with varying frequencies depending on
performance and stability. However, the Bank audits all transactions with new
Dealers. While the Bank does not have financial requirements for new Dealers,
most of the Dealers consist of manufacturer franchised dealerships and the
related manufacturers do have financial requirements. The Bank has the right to
audit the books and records of all Dealers.
The Bank also occasionally makes bulk purchases of Motor Vehicle Loans from
other financial institutions.
UNDERWRITING
Mellon Bank, N.A. All of the Motor Vehicle Loans purchased from Dealers
will be underwritten, and any Motor Vehicle Loans purchased in bulk will be
re-underwritten, to the Bank's underwriting standards. The underwriting
standards emphasize each prospective obligor's ability to pay and
creditworthiness, based on employment and residential stability,
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<PAGE> 56
as well as the asset value of the motor vehicle that secures the Motor Vehicle
Loan. Although the Bank does not have minimum policy requirements on the length
of time an applicant has been an employee of a particular employer or resident
at a particular address, generally, an applicant must be employed for not less
than one year with the same employer or have established comparable stability in
a particular field. Applications without employment and/or residential stability
may require greater levels of authority for approval.
The Bank's credit review process takes into account factors such as credit
bureau information, past analogous borrowing experience and income requirements.
Prior to the purchase of a Motor Vehicle Loan, the Bank reviews the credit
application from each applicant, including information about each obligor's
income, credit obligations, and other personal information. Upon receipt of an
application, the Bank obtains a credit report from an independent credit bureau,
which the Bank reviews to determine the applicant's current credit status and
past credit performance. Where necessary, the Bank may obtain more than one
credit report. The Bank considers the following information contained in the
credit report: length of time in file, number of trade lines, level of
obligations maintained, breadth of credit experience, previous automobile
financing experience and other credit. The Bank then compares the amount
requested to be financed in the application to the applicant's credit history.
Generally, the Bank requires an applicant to have a minimum of three years
history in the file and a minimum household income of $20,000.
The Bank utilizes credit scoring systems to assist in the processing of the
applications including the Fair, Isaac Auto Enhanced bureau score and a custom
built scorecard ("MDS") derived from the Fair, Isaac Auto Enhanced bureau score.
The credit scores are used to increase the productivity of the underwriters,
automatically approve and decline applications, recommend approve or reject
decisions and to route applications to more experienced underwriters.
Applications identified by score as less creditworthy may either be
automatically declined or routed to more experienced underwriters for their
concurrence before an approval is rendered. Conversely, applications identified
by score as creditworthy may either be automatically approved or routed to less
experienced underwriters for their concurrence before an acceptance is rendered.
Applications scoring below the established score guidelines, regardless of other
circumstances, require senior management concurrence/approval.
The Bank may also conduct an additional investigation, which may consist of
some or all of the following steps: requiring written proof of employment and
income, direct telephone verification of an applicant's employment, and
discussions with the originating Dealer to resolve concerns about the
applicant's creditworthiness. The Bank then analyzes the application under the
Bank's underwriting criteria, and, for those applications that are approved,
determines the amount and terms of the financing the Bank will offer.
The Bank's standards permit to a minimum loan of $2,500 and a maximum loan
of $100,000. The maximum advance rate for current year models is 120% of the
manufacturer's suggested retail price ("MSRP") plus 100% of dealer installed
options (at dealer costs) and tax and licensing fees. The maximum advance rate
for used vehicles is 120% of the wholesale value in the National Automobile
Dealers Association Guide on Retail and Wholesale Values ("NADA") plus tax and
licensing fees. A vehicle more than
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seven years old will be considered an exception. All overrides are monitored for
performance and reported to management on a regular basis. The decision is
communicated to the Dealer. In the case of a declined application, the Bank's
practice is to explain the reason for the declination to the Dealer and send a
declination letter to the applicant.
The standard maximum term for a Motor Vehicle Loan depends, in part, on the
age of the Financed Vehicle, the MDS credit score and the purchase price. In any
case, the minimum term for a Motor Vehicle Loan is 12 months, the maximum term
for a new vehicle is 72 months and the maximum term for a vehicle that is five
or more years old is 36 months.
Exceptions to the above credit parameters are made at the discretion of the
credit underwriter and/or credit manager with the appropriate decision
authority. In considering any exception, the Bank looks for compensating factors
in the borrower's credit such as a higher credit score or lower advance rate
than would otherwise be required to approve such loan if the borrower had
otherwise satisfied each of the underwriting criteria. The Bank's exceptions
policy is designed to ensure that the credit quality of the loan subject to any
such exception is consistent with the credit quality of the Bank's other loans.
Underwriters are assigned specific dollar and decision (policy) authority based
on experience, performance results and position. The greater the deviation from
established policy, the higher the level of authority required. Caps are placed
on all policy rules where no one carries override authority except the senior
credit policy officer.
Unaffiliated Sellers. If a Trust includes Receivables originated by an
entity that is not affiliated with the Depositor, the applicable Prospectus
Supplement will describe the underwriting standards of such entity.
CONTRACT MODIFICATION
The Servicer will follow specific procedures with respect to contract
extensions and modifications. Extensions may be granted to a current or
delinquent customer to cure a short term cash flow problem and an extension fee
may be charged. Extensions are granted on an individual basis and are reported
and monitored closely. Generally, the extension policy includes:
(1) at least six monthly payments must be made before an account is
eligible for extension;
(2) one extension is allowed for every 12 month period;
(3) extensions will not be granted if the loan is deemed to be
uncollectible; and
(4) extensions will not be granted if the Obligor has not made at least
one payment in the last 30 days. Approval by the collection's supervisor
must be obtained before any extension is granted.
The Servicer may also change a payment date once during the term of the
Motor Vehicle Loan as an accommodation to the Obligor if the new payment date is
within 20 days of the original scheduled payment date. Such change of payment
date is not deemed to be an extension and no extension fee is charged.
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Each Sale and Servicing Agreement generally will prohibit the Servicer,
except as provided or required under applicable law, from making modifications
to the Motor Vehicle Loans that (1) reduce the original rates of interest on the
Motor Vehicle Loans, (2) reduce the amount of the regularly scheduled payments
on the Motor Vehicle Loans or (3) extend the final payment dates on such Motor
Vehicle Loans beyond the Collection Period relating to the Certificate Final
Scheduled Distribution Date.
INSURANCE
Each Motor Vehicle Loan requires the Obligor to obtain physical damage
insurance covering loss or damage to the motor vehicle naming the Bank as loss
payee, with a maximum deductible amount of $500.00. As a prerequisite to
acquiring a Motor Vehicle Loan, the Obligor must provide the related Seller with
evidence of insurance acceptable to the Bank, in the form of either a
certificate of insurance, a binder or an agreement evidencing a commitment to
provide insurance to the obligor. The Servicer will not force place insurance.
However, in the event that an Obligor's insurance coverage lapses, the Servicer
may foreclose on the Motor Vehicle Loan.
SERVICING AND COLLECTION
The Servicer, either directly or through subservicers, will be responsible
for managing, administering, servicing and making collections on the Receivables
held by each Trust. A 10-day grace period is provided before the assessment of a
late charge. All payments are made to a lock-box. Once the payments are
processed and posted, the Servicer may begin collection efforts with respect to
delinquent payments. However, based on an Obligor's payment history profile,
which takes into account both the Obligor's payment history and updated
calculations of the obligor's FICO score, such collection efforts may be
delayed. Subject to the foregoing, the Servicer's policy is to begin collection
activities with respect to delinquent Motor Vehicle Loans on the sixth day
following the due date, at which time a system-generated notification prompts a
collection representative to make telephone contact with the Obligor to request
payment whether a collector attempts to contact the delinquent Obligor by
telephone or by letter is determined by the term of the delinquency and the
history of the account. If attempts to contact the delinquent Obligor have
failed, the collection officer may attempt to contact the Obligor's references.
Repossession procedures begin when all other collection efforts are exhausted.
The Servicer follows specific procedures with respect to repossessions and
uses unaffiliated independent contractors to perform repossessions. Once a motor
vehicle is repossessed, a notice of repossession is sent to the Obligor,
detailing the requirements that must be met for the Obligor to redeem the
financed vehicle. Motor vehicles that remain unredeemed beyond the required
state law notice period are remarketed through various channels, including
auction sales, consignment sales and direct sales to Dealers.
The current policy of the Servicer is to write-off a Motor Vehicle Loan on
or before the date on which the contract becomes 150 days delinquent. If the
motor vehicle securing the Motor Vehicle Loan is repossessed, the Servicer's
current policy is to write-off the contract amount upon the earlier of the sale
of the motor vehicle or before the date on
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which the contract becomes 150 days delinquent. Any deficiencies remaining after
the full write-off of the related Motor Vehicle Loan or deficiencies remaining
after repossession and sale of the related motor vehicle are pursued by the
Servicer, when practicable and legally permitted. Collection officers generally
continue to contact the Obligors to establish repayment schedules or to
repossess until a final resolution is achieved.
THE RECEIVABLES POOLS
The Receivables to be held by each Trust will be selected from the Seller's
portfolio of Motor Vehicle Loans for inclusion in a Receivables Pool by several
criteria, including that, unless otherwise provided in the related Prospectus
Supplement, each Receivable:
- is secured by a new or used vehicle;
- was originated in the United States;
- provides for level monthly payments which fully amortize the amount
financed (except for the last payment, which may be different from the
level payments);
- is an Actuarial Receivable or a Simple Interest Receivable; and
- satisfies the other criteria, if any, set forth in the related
Prospectus Supplement. No selection procedures believed by the Depositor
to be adverse to the Securityholders of any Series were or will be used
in selecting the related Receivables.
"Simple Interest Receivables" are receivables that provide for the
amortization of the amount financed over a series of fixed level monthly
payments. However, unlike the monthly payment under a Actuarial Receivable, each
monthly payment consists of an installment of interest which is calculated on
the basis of the outstanding principal balance of the receivable multiplied by
the stated APR and further multiplied by the period elapsed (as a fraction of a
calendar year) since the preceding payment of interest was received. As payments
are received under a Simple Interest Receivable, the amount received is applied
first to interest accrued to the date of payment and the balance is applied to
reduce the unpaid principal balance. Accordingly, if an Obligor pays a fixed
monthly installment before its scheduled due date, the portion of the payment
allocable to interest for the period since the preceding payment was made will
be less than it would have been had the payment been made as scheduled, and the
portion of the payment applied reduce the unpaid principal balance will be
correspondingly greater. Conversely, if an Obligor pays a fixed monthly
installment after its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be greater
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. In either case, the Obligor pays a fixed monthly
installment until the final scheduled payment date, at which time the amount of
the final installment is increased or decreased as necessary to repay the then
outstanding principal balance.
In the event of the prepayment in full (voluntarily or by acceleration) of
an Actuarial Receivable, with minor variations based upon state law, the
Actuarial Receivable requires that a "rebate" will be made to the Obligor of the
portion of the total amount of payments then due and payable under the contract
allocable to "unearned" add-on interest, calculated
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on the basis of a constant interest rate. If a Simple Interest Receivable is
prepaid, rather than receive a rebate, the Obligor is required to pay interest
only to the date of prepayment. The amount of a rebate on an Actuarial
Receivable generally will be less than the remaining scheduled payments of
interest that would have been due under a Simple Interest Receivable for which
all payments were made on schedule.
The Servicer may accede to an Obligor's request to pay scheduled payments
in advance, in which event the Obligor will not be required to make another
regularly scheduled payment until the time a scheduled payment not paid in
advance is due. The amount of any payment (which are not amounts representing
Payaheads) made in advance will be treated as a principal prepayment and will be
distributed as part of the Principal Distribution Amount in the month following
the Collection Period in which the prepayment was made. See "Maturity and
Prepayment Assumptions."
Information with respect to each Receivables Pool will be set forth in the
related Prospectus Supplement, including, the composition, the distribution by
APR and by the states of origination, the portion of such Receivables Pool
consisting of Actuarial Receivables and of Simple Interest Receivables and the
portion of such Receivables Pool secured by new vehicles and by used vehicles.
MATURITY AND PREPAYMENT ASSUMPTIONS
PREPAYMENT CONSIDERATIONS
The weighted average life of the Notes, if any, and the Certificates of any
Series will generally be influenced by the rate at which the principal balances
of the related Receivables are paid, which payment may be in the form of
scheduled amortization or prepayments. All of the Receivables are prepayable at
any time without penalty to the Obligor. For this purpose, the term
"prepayments" includes prepayments by Obligors in full or in part, certain
partial prepayments related to liquidations due to default, including rebates of
extended warranty contract costs and insurance premiums, as well as proceeds
received from physical damage, credit life, theft and disability insurance
policies and certain other Receivables, purchased or repurchased pursuant to the
terms of a Sale and Servicing Agreement or Pooling and Servicing Agreement, as
the case may be. The rate of prepayments on the related Receivables may be
influenced by a variety of economic, social and other factors, including changes
in interest rates and the fact that an Obligor generally may not sell or
transfer the Financed Vehicle securing a Receivable without the consent of the
secured party, which generally results in repayment of the remaining principal
balance of the related Receivable. In addition, under certain circumstances, the
Seller will be obligated to repurchase Receivables from a given Trust pursuant
to the related Sale and Servicing Agreement or Pooling and Servicing Agreement
as a result of breaches of representations and warranties and the Servicer will
be obligated to purchase Receivables from such Trust pursuant to such Sale and
Servicing Agreement or Pooling and Servicing Agreement as a result of breaches
of certain covenants. See "Description of the Transfer and Servicing
Agreements -- Sale and Assignment of Receivables" and "-- Servicing Procedures."
See also "Description of the Transfer and Servicing Agreements --
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Termination" regarding the Servicer's option to purchase the Receivables from a
given Trust or regarding the Auction Sale of the Receivables by the Applicable
Trustee if so specified in the related Prospectus Supplement if satisfactory
bids for the purchase of Receivables are received.
There can be no assurance as to the amount of principal payments to be made
on the Notes, if any, or the Certificates of a given Series on each Payment Date
or Distribution Date, as applicable, since such amount will depend, in part, on
the amount of principal collected on the related Receivables Pool during the
applicable Collection Period. Any reinvestment risks resulting from a faster or
slower incidence of prepayment of Receivables will be borne entirely by the
Noteholders, if any, and the Certificateholders of a given Series. In addition,
the extent to which the yield to maturity of a class of Securities may vary from
the anticipated yield may depend upon the degree to which it is purchased at a
discount or premium, and the degree to which the timing of payments thereon is
sensitive to prepayments, liquidations and purchases of the Receivables.
Further, an investor should consider the risk that, in the case of any class of
Securities purchased at a discount, a slower than anticipated rate of principal
payments (including prepayments) on the Receivables could result in an actual
yield to such investor that is lower than the anticipated yield and, in the case
of a class of Securities purchased at a premium, a faster than anticipated rate
of principal payments on the Receivables could result in an actual yield to such
investor that is lower than the anticipated yield. See "Risk Factors -- The
Investment Return on the Securities is Uncertain."
PAID-AHEAD RECEIVABLES
If an Obligor on a Simple Interest Receivable pays more than one scheduled
payment at a time, the entire amount of the additional payment will be treated
as a principal prepayment and distributed as part of the principal collections
in the month following the month of receipt. The Bank does not generally require
the Obligor on a Simple Interest Receivable to make any scheduled payment in
respect of such Receivable (a "Paid-Ahead Receivable") for the number of due
dates corresponding to the number of such additional scheduled payments (the
"Paid-Ahead Period"). Although the terms of the retail installment contract
require the Obligor on a Simple Interest Receivable to make its next scheduled
payment, the Obligor's Receivable is not considered delinquent for purposes of
the related Sale and Servicing Agreement or Pooling and Servicing Agreement, as
the case may be, during the Paid-Ahead Period and, interest will continue to
accrue on the principal balance of the Receivable, as reduced by the application
of the early payment. When the Obligor on a Simple Interest Receivable pays the
next required payment, although such payment may be insufficient to cover the
interest that has accrued since the last payment by the Obligor on a Simple
Interest Receivable, the Obligor's Receivable would be considered to be current.
This situation will continue until the installments are once again sufficient to
cover all accrued interest and to reduce the principal balance of the Simple
Interest Receivable. Depending on the principal balance and the APR of the
related Simple Interest Receivable and on the number of installments that were
paid early, there may be extended periods of time during which Simple Interest
Receivables that are current are not
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amortizing. During such periods, no distributions in respect of principal will
be made to the Securityholders with respect to such Receivables.
Paid-Ahead Receivables will affect the weighted average life of the Notes
and Certificates of any Series. The distribution of the paid-ahead amount on the
Distribution Date following the Collection Period in which such amount was
received will generally shorten the weighted average life of the Notes and
Certificates of any Series. However, depending on the length of time during
which a Paid-Ahead Receivable is not amortizing as described above, the weighted
average life of such Notes and Certificates may be extended.
The Bank's portfolio of Motor Vehicle Loans has historically included
contracts which have been paid-ahead by one or more scheduled monthly payments.
There can be no assurance as to the number of Receivables which may become
Paid-Ahead Receivables or the number or the principal amount of the scheduled
payments which may be paid-ahead.
The related Prospectus Supplement may set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to the particular Receivables Pool and the related series of
Securities.
BALLOON LOANS
Under certain of the Balloon Loans, the Obligor may be able to return the
related Financed Vehicle to the Bank in satisfaction of the Balloon Loan,
subject to certain charges. The ability of Obligors to make Balloon Payments, if
any, will normally depend on the Obligor's ability to obtain refinancing of
their Balloon Loans. The ability to obtain refinancing will depend on a number
of factors prevailing at the time refinancing is required, including, without
limitation, the value of the related motor vehicle, the Obligor's financial
situation, prevailing automobile loan interest rates and general economic
conditions. The Bank sometimes provides refinancing of Balloon Loans and in
certain limited circumstances must at the option of the Obligor refinance the
related Receivable. Delinquencies, if any, in the payment of Balloon Payments
may delay the date on which the principal balance of the Notes and the
Certificate Balance is reduced to zero, and may increase the weighted average
lives of such Notes and Certificates. Although a low interest rate environment
may facilitate the refinancing of a Balloon Loan, the receipt and reinvestment
by Securityholders of the proceeds in such an environment may produce a lower
return than that previously received in respect of the related Balloon Loan.
Conversely, a high interest environment may make it more difficult for the
Obligor to accomplish a refinancing and may result in delinquencies or defaults.
See "Risk Factors -- Balloon Loans Create Additional Risks."
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POOL FACTORS AND TRADING INFORMATION
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer will compute prior to each distribution with respect
to such class of Notes indicating the remaining outstanding principal balance of
such class of Notes, as of the applicable Payment Date (after giving effect to
payments to be made on such Payment Date), as a fraction of the initial
outstanding principal balance of such class of Notes. The "Certificate Pool
Factor" for each class of Certificates will be a seven-digit decimal which the
Servicer will compute prior to each distribution with respect to such class of
Certificates indicating the remaining Certificate Balance of such class of
Certificates, as of the applicable Distribution Date (after giving effect to
distributions to be made on such Distribution Date), as a fraction of the
initial Certificate Balance of such class of Certificates. Each Note Pool Factor
and each Certificate Pool Factor will initially be 1.0000000 and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable class of Notes, or the reduction of the Certificate Balance of the
applicable class of Certificates, as the case may be. A Noteholder's portion of
the aggregate outstanding principal balance of the related class of Notes is the
product of (x) the original denomination of such Noteholder's Note and (y) the
applicable Note Pool Factor. A Certificateholder's portion of the aggregate
outstanding Certificate Balance for the related class of Certificates is the
product of (a) the original denomination of such Certificateholder's Certificate
and (b) the applicable Certificate Pool Factor.
With respect to each Trust, the Noteholders, if any, and the
Certificateholders will receive monthly reports pursuant to the Indenture, the
Trust Agreement or the Pooling and Servicing Agreement, as the case may be,
concerning payments received on the Receivables, the Pool Balance (as such term
is defined in the related Prospectus Supplement, the "Pool Balance"), each
Certificate Pool Factor or Note Pool Factor, as applicable, and various other
items of information. In addition, Securityholders of record during any calendar
year will be furnished information for tax reporting purposes not later than the
latest date permitted by law. See "Certain Information Regarding the
Securities -- Reports to Securityholders.
USE OF PROCEEDS
The net proceeds from the sale of the Securities of a given Series will be
applied by the Depositor to the purchase of the Receivables and other Trust
property from the Seller, to make the Reserve Account Initial Deposit, if any,
and to make the deposit of the Pre-Funded Amount into the Pre-Funding Account,
if any.
THE DEPOSITOR
The Depositor is a wholly-owned subsidiary of Mellon Bank, N.A. The
Depositor was incorporated in the State of Delaware in September 1998. The
principal executive offices of the Depositor are located at One Mellon Bank
Center, Fourth Floor, Pittsburgh, Pennsylvania, and its telephone number is
(412) 234-7142.
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The Depositor is a separate, limited purpose subsidiary the certificate of
incorporation of which contains certain limitations (including restrictions on
the nature of the Depositor's business and a restriction on the Depositor's
ability to commence a voluntary case or proceeding under any Insolvency Law
without the prior unanimous affirmative vote of all of its directors).
The Indenture Trustee, the Trustee, all Noteholders and all
Certificateholders of each Trust will covenant that they will not at any time
institute against the Depositor any bankruptcy, reorganization or other
proceeding under any Federal or state bankruptcy or similar law.
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THE SERVICER
Mellon Bank, N.A., is engaged in, among other things, the business of
leasing new and used automobiles (including passenger cars, minivans,
sport/utility vehicles and light trucks) to individuals and businesses,
servicing such leases during their term and remarketing the automobiles upon the
expiration of the leases. Mellon Bank, N.A. services motor vehicle retail
installment sales contracts secured by new and used motor vehicles originated as
described in the related Prospectus Supplement. The Servicer's servicing
operations are located at Two Mellon Bank Center, Eighth Floor, Pittsburgh,
Pennsylvania, and its telephone number is (412) 236-2271.
As of December 31, 1998, the Servicer serviced approximately 30,253 retail
installments sale contracts, consisting primarily of new and used automobile
(including passenger car, minivan, sport/utility vehicle and light truck)
receivables, representing an outstanding balance of approximately $352 million.
DESCRIPTION OF THE NOTES
With respect to each Trust that issues Notes, one or more classes of Notes
of the related Series will be issued pursuant to the terms of an Indenture, a
form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. The following summary describes the material
terms of the Notes and the Indenture and is subject to, and is qualified in its
entirety by reference to, the related Prospectus Supplement.
DENOMINATIONS AND FORM
The Depositor expects that the Notes will initially be represented by one
or more Notes, in each case registered in the name of the nominee of DTC, except
as set forth below. Persons acquiring beneficial ownership interests in the
Notes so registered will hold their interests in the Notes through DTC in the
United States and Cedelbank ("Cedel") and the Euroclear System ("Euroclear") in
Europe. See "Certain Information Regarding the Securities" and "Annex I" hereto.
Unless the related Prospectus Supplement specifies that the Notes are offered in
definitive form, the Notes will be available for purchase in denominations of
$25,000 and integral multiples of $1,000 in excess thereof in book-entry form
only. The Depositor has been informed by DTC that DTC's nominee will be Cede,
unless another nominee is specified in the related Prospectus Supplement.
Accordingly, such nominee is expected to be the holder of record of the Notes of
each class. Unless and until Definitive Notes are issued under the limited
circumstances described herein or in the related Prospectus Supplement, no
Noteholder will be entitled to receive a physical certificate representing a
Note. All references herein and in the related Prospectus Supplement to actions
by Noteholders refer to actions taken by DTC upon instructions from its
participating organizations (the "Participants") and all references herein and
in the related Prospectus Supplement to distributions, notices, reports and
statements to Noteholders refer to distributions, notices, reports and
statements to DTC or its nominee, as the registered holder of the Notes, for
distribution to Noteholders in accordance with
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DTC's procedures with respect thereto. See "Certain Information Regarding the
Securities Book-Entry Registration" and "-- Definitive Securities."
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal and
interest on each class of Notes of a given Series will be described in the
related Prospectus Supplement. The right of holders of any class of Notes to
receive payments of principal and interest may be senior or subordinate to the
rights of holders of any other class or classes of Notes of such Series, as
described in the related Prospectus Supplement. Unless otherwise provided in the
related Prospectus Supplement, payments of interest on the Notes of such Series
will be made prior to payments of principal thereon. To the extent provided in
the related Prospectus Supplement, a Series may include one or more classes of
Strip Notes entitled to (1) principal payments with disproportionate, nominal or
no interest payments or (2) interest payments with disproportionate, nominal or
no principal payments. Each class of Notes may have a different Interest Rate,
which may be a fixed, variable or adjustable Interest Rate (and which may be
zero for certain classes of Strip Notes), or any combination of the foregoing.
The related Prospectus Supplement will specify the Interest Rate for each class
of Notes of a given Series or the method for determining such Interest Rate. See
also "Certain Information Regarding the Securities -- Fixed Rate Securities" and
"-- Floating Rate Securities." One or more classes of Notes of a Series may be
redeemable in whole or in part under the circumstances specified in the related
Prospectus Supplement, including at the end of the Funding Period (if any) or as
a result of the Servicer's exercising its option to purchase the related
Receivables Pool.
To the extent specified in any Prospectus Supplement, one or more classes
of Notes of a given Series may have fixed principal payment schedules, as set
forth in such Prospectus Supplement; Noteholders of such Notes would be entitled
to receive as payments of principal on any given Payment Date the applicable
amounts set forth on such schedule with respect to such Notes, in the manner and
to the extent set forth in the related Prospectus Supplement.
Payments to Noteholders of all classes within a Series in respect of
interest generally will have the same priority. Under certain circumstances, the
amount available for such payments could be less than the amount of interest
payable on the Notes on any of the dates specified for payments in the related
Prospectus Supplement (each, a "Payment Date," which may be the same date as
each Distribution Date as specified in the related Prospectus Supplement), in
which case each class of Noteholders will receive its ratable share (based upon
the aggregate amount of interest due to such class of Noteholders) of the
aggregate amount available to be distributed in respect of interest on the Notes
of such Series. See "Description of the Transfer and Servicing
Agreements -- Distributions" and "-- Credit and Cash Flow Enhancement."
With respect to a Series that includes two or more classes of Notes, each
class may differ as to the timing and priority of payments, seniority,
allocations of losses, Interest Rate or amount of payments of principal or
interest, or payments of principal or interest in
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respect of any such class or classes may or may not be made upon the occurrence
of specified events relating to the performance of the Receivables (including
loss, delinquency and prepayment experience), the related subordination and/or
the lapse of time or on the basis of collections from designated portions of the
related Receivables Pool. Generally, the related Rating Agencies, the credit
enhancer, if any, and the prevailing market conditions at the time of issuance
of the Notes of a Series dictate the applicable specified events with respect to
such Series. Payments in respect of principal and interest of any class of Notes
will be made on a pro rata basis among all the Noteholders of such class.
THE INDENTURE
Events of Default; Rights upon Event of Default. With respect to the Notes
of a given Series, "Events of Default" under the related Indenture will include:
(1) a default for five days or more in the payment of any interest on
any such Note when the same becomes due and payable;
(2) a default in the payment of the principal of or any installment of
the principal of any such Note when the same becomes due and payable;
(3) a default in the observance or performance of any covenant or
agreement of the applicable Trust made in the related Indenture and the
continuation of any such default for a period of 30 days after notice
thereof is given to such Trust by the applicable Indenture Trustee or to
such Trust and such Indenture Trustee by the holders of at least 25% in
aggregate principal amount of such Notes then outstanding;
(4) any representation or warranty made by such Trust in the related
Indenture or in any certificate delivered pursuant thereto or in connection
therewith having been incorrect in a material respect as of the time made,
and such breach not having been cured within 30 days after notice thereof
is given to such Trust by the applicable Indenture Trustee or to such Trust
and such Indenture Trustee by the holders of at least 25% in principal
amount of such Notes then outstanding; or
(5) certain events of bankruptcy, insolvency, receivership or
liquidation of the applicable Trust. However, the amount of principal
required to be paid to Noteholders of such Series under the related
Indenture will generally be limited to amounts available to be deposited
from the applicable Collection Account (including amounts deposited therein
from the Reserve Account, if any) in the applicable Note Distribution
Account. Therefore, the failure to pay principal on a class of Notes
generally will not result in the occurrence of an Event of Default until
the final scheduled Payment Date for such class of Notes.
If an Event of Default should occur and be continuing with respect to the
Notes of any Series, the related Indenture Trustee or holders of a majority in
principal amount of such Notes then outstanding may declare the principal of
such Notes to be immediately due and payable. Such declaration may, under
certain circumstances, be rescinded by the holders of a majority in principal
amount of such Notes then outstanding.
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If the Notes of any Series are due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may, in its
discretion, either require the applicable Trust to sell the related Receivables
or elect to have the applicable Trust maintain possession of such Receivables
and continue to apply collections on such Receivables as if there had been no
declaration of acceleration. However, such Indenture Trustee is prohibited from
directing the Trust to sell the related Receivables following an Event of
Default, other than a default in the payment of any principal or a default for
five days or more in the payment of any interest on any Note of such Series,
unless;
(1) the holders of all such outstanding Notes consent to such sale,
(2) the proceeds of such sale are sufficient to pay in full the
principal of and the accrued interest on such outstanding Notes at the date
of such sale or
(3) such Indenture Trustee determines that the collections on
Receivables would not be sufficient on an ongoing basis to make all
payments on such Notes as such payments would have become due if such
obligations had not been declared due and payable, and such Indenture
Trustee obtains the consent of the holders of 66 2/3% of the aggregate
outstanding amount of such Notes then outstanding.
In the event the Notes are accelerated and the Receivables are sold, no
distributions will be made on the Certificates until all of the interest on and
principal of the Notes has been paid in full. In such event, all the funds, if
any, on deposit in the applicable Reserve Account, if any, will be available to
first pay interest on and principal of the Notes.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a Series of Notes, such Indenture Trustee will be
under no obligation to exercise any of the rights or powers under such Indenture
at the request or direction of any of the holders of such Notes, if such
Indenture Trustee reasonably believes it will not be adequately indemnified
against the costs, expenses and liabilities which might be incurred by it in
complying with such request. Subject to such provisions for indemnification and
certain limitations contained in the related Indenture, the holders of a
majority in aggregate principal amount of the outstanding Notes of a given
Series will have the right to direct the time, method and place of conducting
any proceeding or any remedy available to the applicable Indenture Trustee, and
the holders of a majority in aggregate principal amount of such Notes then
outstanding may, in certain cases, waive any default with respect thereto,
except a default in the payment of principal or interest or a default in respect
of a covenant or provision of such Indenture that cannot be modified without the
waiver or consent of all the holders of such outstanding Notes.
No holder of a Note of any Series will have the right to institute any
proceeding with respect to the related Indenture, unless:
(1) such holder previously has given to the applicable Indenture
Trustee written notice of a continuing Event of Default;
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(2) the holders of not less than 25% in aggregate principal amount of
the outstanding Notes of such Series have made written request to such
Indenture Trustee to institute such aggregate proceeding in its own name as
Indenture Trustee;
(3) such holder or holders have offered such Indenture Trustee
reasonable indemnity;
(4) such Indenture Trustee has for 60 days after its receipt of such
written request failed to institute such proceeding; and
(5) no direction inconsistent with such written request has been given
to such Indenture Trustee during such 60-day period by the holders of a
majority in principal amount of such outstanding Notes.
Notwithstanding the foregoing, the holder of any Note shall have the right,
which is absolute and unconditional, to receive payment of the principal of and
interest, if any, on such Note on or after the respective due dates thereof and
to institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such holder.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the Depositor or the applicable Trust any bankruptcy,
reorganization or other proceeding under any federal or state bankruptcy or
similar law.
With respect to any Trust, neither the related Indenture Trustee nor the
related Trustee in its individual capacity, nor any holder of a Certificate
representing an ownership interest in such Trust nor the Seller, the Depositor
nor the Servicer nor any of their respective owners, beneficiaries, agents,
officers, directors, employees, affiliates, successors or assigns will, in the
absence of an express agreement to the contrary, be personally liable for the
payment of the principal of or interest on the related Notes or for the
agreements of such Trust contained in the applicable Indenture.
Certain Covenants. Each Indenture will provide that the related Trust may
not consolidate or merge with or into any other entity, unless;
(1) the entity formed by or surviving such consolidation or merger is
organized under the laws of the United States, any state or the District of
Columbia;
(2) such entity expressly assumes such Trust's obligation to make due
and punctual payments on the Notes of the related Series and the
performance or observance of every agreement and covenant of such Trust
under the related Indenture;
(3) no Event of Default shall have occurred and is continuing
immediately after such transaction;
(4) neither of the Rating Agencies, after 10 days' prior notice, shall
have notified the Depositor, the Seller, the Servicer or such Trust in
writing that such transaction will result in a reduction of withdrawal of
the then current ratings of any class of Notes of such Series;
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<PAGE> 70
(5) such Trust has received an opinion of counsel to the effect that
such transaction would have no material adverse federal or state tax
consequence to such Trust or to any Certificateholder or Noteholder;
(6) any action necessary to maintain the lien and security interest
created by the related Indenture has been taken; and
(7) that such Trust has delivered to the related Indenture Trustee an
officers' certificate of such Trust and an opinion of counsel each stating
that such transaction and the supplemental indenture executed in connection
with such transaction comply with such Indenture and that all conditions
precedent relating to the transaction have been complied with (including
any filing required by the Exchange Act).
A Trust may not convey or transfer all or substantially all its properties
or assets to any other entity, unless;
(1) the entity that acquires the assets of such Trust;
(A) agrees that all right, title and interest conveyed or
transferred shall be subject and subordinate to the rights of the
related Noteholders,
(B) unless otherwise agreed, expressly agrees to indemnify,
defend and hold harmless such Trust against and from any loss,
liability or expense arising under or related to the applicable
Indenture and the Notes of such Series,
(C) expressly agrees to make all filings with the Commission and
any other appropriate entity) required by the Exchange Act in
connection with the Notes of such Series and
(D) is organized under the laws of the United States, any state,
or the District of Columbia; and
(2) the criteria specified in clauses (2) through (7) of the preceding
paragraph have been complied with.
Each Trust will not, among other things:
(1) except as expressly permitted by the applicable Indenture, the
applicable Trust Agreement, the applicable Sale and Servicing Agreement or
certain related documents with respect to such Trust (collectively, the
"Related Documents"), sell, transfer, exchange or otherwise dispose of any
of the assets of such Trust;
(2) claim any credit on or make any deduction from the principal and
interest payable in respect of the Notes of the related Series (other than
amounts withheld under the Code or applicable state law) or assert any
claim against any present or former holder of such Notes because of the
payment of taxes levied or assessed upon the collateral for such Notes;
(3) except as contemplated in the Related Documents, dissolve or
liquidate in whole or in part;
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<PAGE> 71
(4) permit the validity or effectiveness of the related Indenture to be
impaired or permit any person to be released from any covenants or
obligations with respect to such Notes under such Indenture except as may
be expressly permitted thereby;
(5) permit any lien, charge, excise, claim, security interest, mortgage
or other encumbrance to be created on or extend to or otherwise arise upon
or burden the collateral for such Notes, or any part thereof, or any
interest therein or the proceeds thereof, except as expressly permitted by
the Related Documents; or
(6) permit the lien of the applicable Indenture not to constitute a
valid first priority security interest in the collateral for the related
Receivables.
No Trust may engage in any activity other than financing, purchasing,
owning, selling and managing the related Receivables, in each case as
contemplated by the Related Documents and activities incidental thereto. No
Trust will incur, assume or guarantee any indebtedness other than indebtedness
incurred pursuant to the related Notes and the related Indenture, pursuant to
any Advances made to it by the Servicer or otherwise in accordance with the
Related Documents.
Annual Compliance Statement. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment of
its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee for each Trust
will be required to mail each year to all related Noteholders a brief report
relating to, among other things, its eligibility and qualification to continue
as Indenture Trustee under the related Indenture, any amounts advanced by it
under the Indenture, the amount, interest rate and maturity date of certain
indebtedness owing by such Trust to the applicable Indenture Trustee in its
individual capacity, the property and funds physically held by such Indenture
Trustee as such and any action taken by it that materially affects the related
Notes and that has not been previously reported.
Satisfaction and Discharge of Indenture. An Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
Modification of Indenture. With respect to each Trust that has issued Notes
pursuant to an Indenture, the Trust and the Indenture Trustee may, with the
consent of the holders of a majority of the outstanding Notes of the related
Series, execute a supplemental indenture to add provisions to, change in any
manner or eliminate any provisions of, the related Indenture, or modify (except
as provided below) in any manner the rights of the related Noteholders.
With respect to a Series of Notes, without the consent of the holder of
each such outstanding Note affected thereby, however, no supplemental indenture
will:
- change the due date of any installment of principal of or interest on
any such Note or reduce the principal amount thereof, the interest rate
specified thereon or the redemption price with respect thereto, change
the provisions of the related Indenture
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<PAGE> 72
relating to the application of collections on or the proceeds of the
sale of, the collateral for the Notes to payment of principal of or
interest on the Notes of such Series or change any place of payment
where or the coin or currency in which any such Note or any interest
thereon is payable;
- impair the right to institute suit for the enforcement of certain
provisions of the related Indenture regarding payment;
- reduce the percentage of the aggregate principal amount of the
outstanding Notes of such Series, the consent of the holders of which is
required for any such supplemental indenture or the consent of the
holders of which is required for any waiver of compliance with certain
provisions of the related Indenture or of certain defaults thereunder
and their consequences as provided for in such Indenture;
- modify or alter the provisions of the related Indenture regarding the
voting of Notes held by the applicable Trust, the Depositor or an
affiliate of any of them or any obligor on such Notes;
- reduce the percentage of the aggregate outstanding amount of such Notes,
the consent of the holders of which is required to direct the related
Indenture Trustee to sell or liquidate the Receivables if the proceeds
of such sale would be insufficient to pay the principal amount and
accrued but unpaid interest on the outstanding Notes of such Series;
- decrease the percentage of the aggregate principal amount of such Notes
required to amend the sections of the related Indenture which specify
the applicable percentage of aggregate principal amount of the Notes of
such Series necessary to amend such Indenture or certain other related
agreements;
- modify any of the provisions of the related Indenture in such manner as
to affect the calculation of the amount of any payment of interest on
any Distribution Date or principal due on any Note of such Series on any
Distribution Date (including the calculation of any of the individual
components of such calculation) or to affect the rights of the related
Noteholders to the benefit of any provision for the mandatory redemption
of the Notes of such Series contained in the related Indenture; or
- permit the creation of any lien ranking prior to or on a parity with the
lien of the related Indenture with respect to any of the collateral for
such Notes or, except as otherwise permitted or contemplated in such
Indenture, terminate the lien of such Indenture on any such collateral
or deprive the holder of any such Note of the security afforded by the
lien of such Indenture.
The Trust and the applicable Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders of the
related Series, for the purpose of, among other things, adding any provisions to
or changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders; so long
as such action will not, in the opinion of counsel satisfactory to the
applicable Indenture Trustee adversely affect in any material respect the
interest of any such Noteholder.
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<PAGE> 73
Trust Indenture Act. The related Indenture will comply with the applicable
provisions of the Trust Indenture Act of 1939, as amended.
THE INDENTURE TRUSTEE
The Indenture Trustee for a Series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for any Series may resign
at any time, in which event the applicable Trust will be obligated to appoint a
successor trustee for such Series. The applicable Trust may also remove any such
Indenture Trustee if such Indenture Trustee ceases to be eligible to continue as
such under the related Indenture or if such Indenture Trustee becomes insolvent.
In such circumstances, the applicable Trust will be obligated to appoint a
successor trustee for the related Series of Notes. Any resignation or removal of
the Indenture Trustee and appointment of a successor trustee for any Series of
Notes does not become effective until acceptance of the appointment by the
successor trustee for such Series.
DESCRIPTION OF THE CERTIFICATES
With respect to each Trust, one or more classes of Certificates of the
related Series will be issued pursuant to the terms of a Trust Agreement or a
Pooling and Servicing Agreement, a form of each of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
following summary describes the material terms of each Trust Agreement and
Pooling and Servicing Agreement and is subject to, and is qualified in its
entirety by reference to the related Prospectus Supplement.
DENOMINATIONS AND FORM
The Depositor expects that each class of Certificates will initially be
represented by one or more Certificates registered in the name of the
Depository, except as set forth below. Unless the related Prospectus Supplement
specifies that Certificates are offered in definitive form, the Certificates
will be available for purchase in minimum denominations of $25,000 and integral
multiples of $1,000 in excess thereof in book-entry form only (other than the
Certificates sold to the Depositor, as described in the related Prospectus
Supplement). The Depositor has been informed by DTC that DTC's nominee will be
Cede, unless another nominee is specified in the related Prospectus Supplement.
Accordingly, such nominee is expected to be the holder of record of the
Certificates of any Series. Unless and until Definitive Certificates are issued
under the limited circumstances described herein or in the related Prospectus
Supplement, no Certificateholder will be entitled to receive a physical
certificate representing a Certificate. All references herein and in the related
Prospectus Supplement to actions by Certificateholders refer to actions taken by
DTC upon instructions from the Participants and all references herein and in the
related Prospectus Supplement to distributions, notices, reports and statements
to Certificateholders refer to distributions, notices, reports and statements to
DTC or its nominee, as the case may be, as the registered holder of the
Certificates, for distribution to Certificateholders in accordance with DTC's
procedures with respect thereto. See "Certain Information Regarding the
Securities -- Book-Entry Registration" and "-- Definitive Securities."
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<PAGE> 74
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
The timing and priority of distributions, seniority, allocations of losses,
Pass-Through Rate and amount of or method of determining distributions with
respect to principal and interest of each class of Certificates will be
described in the related Prospectus Supplement. Distributions of interest on
such Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") and will be made prior to distributions
with respect to principal of such Certificates. To the extent provided in the
related Prospectus Supplement, a Series may include one or more classes of Strip
Certificates entitled to (x) distributions in respect of principal with
disproportionate, nominal or no interest distributions or (y) interest
distributions with disproportionate, nominal or no distributions in respect of
principal. Each class of Certificates may have a different Pass-Through Rate,
which may be a fixed, variable or adjustable Pass-Through Rate (and which may be
zero for certain classes of Strip Certificates) or any combination of the
foregoing. The related Prospectus Supplement will specify the Pass-Through Rate
for each class of Certificates of a given Series or the method for determining
such Pass-Through Rate. See also "Certain Information Regarding the
Securities -- Fixed Rate Securities" and "-- Floating Rate Securities."
Distributions in respect of the Certificates of a given Series that includes
Notes may be subordinate to payments in respect of the Notes of such Series as
more fully described in the related Prospectus Supplement. Distributions in
respect of interest on and principal of any class of Certificates will be made
on a pro rata basis among all the Certificateholders of such class.
With respect to a Series that includes two or more classes of Certificates,
each class may differ as to timing and priority of distributions, seniority,
allocations of losses, Pass-Through Rate or amount of distributions in respect
of principal or interest, or distributions in respect of principal or interest
in respect of any such class or classes may or may not be made upon the
occurrence of specified events relating to the performance of the Receivables
(including loss, delinquency and prepayment experience), the related
subordination and/or the lapse of time or on the basis of collections from
designated portions of the related Receivables Pool. Generally the related
Rating Agencies, the credit enhancer, if any, and the prevailing market
conditions at the time of issuance of the Certificates of a Series dictate the
applicable specified events with respect to such Series.
CERTAIN INFORMATION REGARDING THE SECURITIES
FIXED RATE SECURITIES
Each class of Securities (other than certain classes of Strip Notes or
Strip Certificates) may bear interest at a fixed rate per annum ("Fixed Rate
Securities") or at a variable or adjustable rate per annum ("Floating Rate
Securities"), as more fully described below and in the applicable Prospectus
Supplement. Each class of Fixed Rate Securities will bear interest at the
applicable per annum Interest Rate or Pass-Through Rate, as the case may be,
specified in the applicable Prospectus Supplement. Unless otherwise set forth in
the applicable Prospectus Supplement, interest on each class of Fixed Rate
Securities will be computed on the basis of a 360-day year of twelve 30-day
months. See "Description of the
28
<PAGE> 75
Notes -- Principal and Interest on the Notes" and "Description of the
Certificates -- Distributions of Principal and Interest."
FLOATING RATE SECURITIES
Each class of Floating Rate Securities will bear interest for each
applicable Interest Reset Period (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Securities, the
"Interest Reset Period") at a rate per annum determined by reference to an
interest rate basis (the "Base Rate"), plus or minus the Spread, if any, or
multiplied by the Spread Multiplier, if any, in each case as specified in the
related Prospectus Supplement. The "Spread" is the number of basis points (one
basis point equals one one-hundredth of a percentage point) that may be
specified in the applicable Prospectus Supplement as being applicable to such
class, and the "Spread Multiplier" is the percentage that may be specified in
the applicable Prospectus Supplement as being applicable to such class.
The applicable Prospectus Supplement will designate one of the following
Base Rates as applicable to a given Floating Rate Security:
(a) LIBOR (a "LIBOR Security");
(b) the Commercial Paper Rate (a "Commercial Paper Rate Security");
(c) the Treasury Rate (a "Treasury Rate Security");
(d) the Federal Funds Rate (a "Federal Funds Rate Security");
(e) the CD Rate (a "CD Rate Security"); or
(f) such other Base Rate as is set forth in such Prospectus Supplement.
The "Index Maturity" for any class of Floating Rate Securities is the
period of maturity of the instrument or obligation from which the Base Rate is
calculated. "H.15(519)" means the publication entitled "Statistical Release
H.15(519), Selected Interest Rates," or any successor publication, published by
the Board of Governors of the Federal Reserve System. "Composite Quotations"
means the daily statistical release entitled "Composite 3:30 p.m. Quotations for
U.S. Government Securities" published by the Federal Reserve Bank of New York.
"Interest Reset Date" will be the first day of the applicable Interest Reset
Period, or such other day as may be specified in the related Prospectus
Supplement with respect to a class of Floating Rate Securities.
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (x) a maximum limitation, or ceiling,
on the rate at which interest may accrue during any interest period and (y) a
minimum limitation, or floor, on the rate at which interest may accrue during
any interest period. In addition to any maximum interest rate that may be
applicable to any class of Floating Rate Securities, the interest rate
applicable to any class of Floating Rate Securities will in no event be higher
than the maximum rate permitted by applicable law, as the same may be modified
by United States law of general application.
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<PAGE> 76
Each Trust with respect to which a class of Floating Rate Securities will
be issued will appoint, and enter into agreements with, a calculation agent
(each, a "Calculation Agent") to calculate interest rates on each such class of
Floating Rate Securities issued with respect thereto. The applicable Prospectus
Supplement will set forth the identity of the Calculation Agent for each such
class of Floating Rate Securities of a given Series, which may be either the
related Trustee or Indenture Trustee with respect to such Series. All
determinations of interest by the Calculation Agent shall, in the absence of
manifest error, be conclusive for all purposes and binding on the holders of
Floating Rate Securities of a given class. Unless otherwise specified in the
applicable Prospectus Supplement, all percentages resulting from any calculation
of the rate of interest on a Floating Rate Security will be rounded, if
necessary, to the nearest 1/100,000 of 1% (.0000001), with five one- millionths
of a percentage point rounded upward.
CD Rate Securities. Each CD Rate Security will bear interest for each
Interest Reset Period at the interest rate calculated with reference to the CD
Rate and the Spread or Spread Multiplier, if any, specified in such Security and
in the applicable Prospectus Supplement.
The "CD Rate" for each Interest Reset Period generally will be the rate as
of the second business day prior to the Interest Reset Date for such Interest
Reset Period (a "CD Rate Determination Date") for negotiable certificates of
deposit having the Index Maturity designated in the applicable Prospectus
Supplement as published in H.I5 (519) under the heading "Cds (Secondary
Market)." In the event that such rate is not published prior to 3:00 p.m., New
York City time, on the Calculation Date (as defined below) pertaining to such CD
Rate Determination Date, then the "CD Rate" for such Interest Reset Period will
be the rate on such CD Rate Determination Date for negotiable certificates of
deposit of the Index Maturity designated in the applicable Prospectus Supplement
as published in Composite Quotations under the heading "Certificates of
Deposit." If by 3:00 p.m., New York City time, on such Calculation Date such
rate is not yet published in either H.I5 (519) or Composite Quotations, then the
"CD Rate" for such Interest Reset Period will be calculated by the Calculation
Agent for such CD Rate Security and will be the arithmetic mean of the secondary
market offered rates as of 10:00 a.m., New York City time, on such CD Rate
Determination Date, of three leading nonbank dealers in negotiable U.S. dollar
certificates of deposit in The City of New York selected by the Calculation
Agent for such CD Rate Security for negotiable certificates of deposit of major
United States money center banks of the highest credit standing (in the market
for negotiable certificates of deposit) with a remaining maturity closest to the
Index Maturity designated in the related Prospectus Supplement in a denomination
of $5,000,000; provided, however, that if the dealers selected as aforesaid by
such Calculation Agent are not quoting offered rates as mentioned in this
sentence, the "CD Rate" for such Interest Reset Period will be the same as the
CD Rate for the immediately preceding Interest Reset Period.
The "Calculation Date" pertaining to any CD Rate Determination Date will be
the first to occur of (a) the tenth calendar day after such CD Rate
Determination Date or, if such day is not a business day, the next succeeding
business day or (b) the second business
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<PAGE> 77
day preceding the date any payment is required to be made for any period
following the applicable Interest Reset Date.
Commercial Paper Rate Securities. Each Commercial Paper Rate Security will
bear interest for each Interest Reset Period at the interest rate calculated
with reference to the Commercial Paper Rate and the Spread or Spread Multiplier,
if any, specified in such Security and in the applicable Prospectus Supplement.
The "Commercial Paper Rate" for each Interest Reset Period generally will
be determined by the Calculation Agent for such Commercial Paper Rate Security
as of the second business day prior to the Interest Reset Date for such Interest
Reset Period (a "Commercial Paper Rate Determination Date") and generally will
be the Money Market Yield (as defined below) on such Commercial Paper Rate
Determination Date of the rate for commercial paper having the Index Maturity
specified in the applicable Prospectus Supplement, as such rate shall be
published in H.I5(519) under the heading "Commercial Paper." In the event that
such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date (as defined below) pertaining to such Commercial Paper Rate
Determination Date, then the "Commercial Paper Rate" for such Interest Reset
Period will be the Money Market Yield on such Commercial Paper Rate
Determination Date of the rate for commercial paper of the specified Index
Maturity as published in Composite Quotations under the heading "Commercial
Paper." If by 3:00 p.m., New York City time, on such Calculation Date such rate
is not yet published in either H.I5 (519) or Composite Quotations then the
"Commercial Paper Rate" for such Interest Reset Period will be the Money Market
Yield of the arithmetic mean of the offered rates, as of 11:00 a.m., New York
City time, on such Commercial Paper Rate Determination Date of three leading
dealers of commercial paper in The City of New York selected by the Calculation
Agent for such Commercial Paper Rate Security for commercial paper of the
specified Index Maturity placed for an industrial issuer whose bonds are rated
"AA" or the equivalent by a nationally recognized rating agency; provided,
however, that if the dealers selected as aforesaid by such Calculation Agent are
not quoting offered rates as mentioned in this sentence, the "Commercial Paper
Rate" for such Interest Reset Period will be the same as the Commercial Paper
Rate for the immediately preceding Interest Reset Period.
"Money Market Yield" will be a yield calculated in accordance with the
following formula:
<TABLE>
<C> <C> <S>
Money Market Yield = D X 360 X 100
-------------
360 - (D X M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the specified Index Maturity.
The "Calculation Date" pertaining to any Commercial Paper Rate
Determination Date will be the first to occur of (a) the tenth calendar day
after such Commercial Paper Rate Determination Date or, if such day is not a
business day, the next succeeding business day or (b) the second business day
preceding the date any payment is required to be made for any period following
the applicable Interest Reset Date.
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<PAGE> 78
Federal Funds Rate Securities. Each Federal Funds Rate Security will bear
interest for each Interest Reset Period at the interest rate calculated with
reference to the Federal Funds Rate and the Spread or Spread Multiplier, if any,
specified in such Security and in the applicable Prospectus Supplement.
The "Federal Funds Rate" for each Interest Reset Period generally will be
the effective rate on the Interest Reset Date for such Interest Reset Period (a
"Federal Funds Rate Determination Date") for Federal Funds as published in
H.I5(519) under the heading "Federal Funds (Effective)." In the event that such
rate is not published prior to 3:00 p.m., New York City time, on the Calculation
Date (as defined below) pertaining to such Federal Funds Rate Determination
Date, the "Federal Funds Rate" for such Interest Reset Period will be the rate
on such Federal Funds Rate Determination Date as published in Composite
Quotations under the heading "Federal Funds/Effective Rate." If by 3:00 p.m.,
New York City time, on such Calculation Date such rate is not yet published in
either H.I5 (519) or Composite Quotations, then the "Federal Funds Rate" for
such Interest Reset Period will be the rate on such Federal Funds Rate
Determination Date made publicly available by the Federal Reserve Bank of New
York which is equivalent to the rate which appears in H.I5(5l9) under the
heading "Federal Funds (Effective);" provided, however, that if such rate is not
made publicly available by the Federal Reserve Bank of New York by 3:00 p.m.,
New York City time, on such Calculation Date, the "Federal Funds Rate" for such
Interest Reset Period will be the same as the Federal Funds Rate in effect for
the immediately preceding Interest Reset Period. In the case of a Federal Funds
Rate Security that resets daily, the interest rate on such Security for the
period from and including a Monday to but excluding the succeeding Monday will
be reset by the Calculation Agent for such Security on such second Monday (or,
if not a business day, on the next succeeding business day) to a rate equal to
the average of the Federal Funds Rates in effect with respect to each such day
in such week.
The "Calculation Date" pertaining to any Federal Funds Rate Determination
Date will be the next succeeding business day.
LIBOR Securities. Each LIBOR Security will bear interest for each Interest
Reset Period at the interest rate calculated with reference to LIBOR and the
Spread or Spread Multiplier, if any, specified in such Security and in the
applicable Prospectus Supplement.
"LIBOR" for each Interest Reset Period will be determined by the
Calculation Agent for any LIBOR Security generally as follows:
(1) On the second London Banking Day prior to the Interest Reset Date
for such Interest Reset Period (a "LIBOR Determination Date"), the
Calculation Agent for such LIBOR Security will determine the arithmetic
mean of the offered rates for deposits in U.S. dollars for the period of
the Index Maturity specified in the applicable Prospectus Supplement,
commencing on such Interest Reset Date, which appear on the Reuters Screen
LIBO Page at approximately 11:00 a.m., London time, on such LIBOR
Determination Date. For purposes of calculating LIBOR, "London Banking Day"
means any business day on which dealings in deposits in United States
dollars are transacted in the London interbank market and "Reuters Screen
LIBO Page" means the display designated as page "LIBO" on the Reuters
Monitor Money Rates Service
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<PAGE> 79
(or such other page as may replace the LIBO page on that service for the
purpose of displaying London interbank offered rates of major banks). If at
least two such offered rates appear on the Reuters Screen LIBO Page,
"LIBOR" for such Interest Reset Period will be the arithmetic mean of such
offered rates as determined by the Calculation Agent for such LIBOR
Security.
(2) If fewer than two offered rates appear on the Reuters Screen LIBO
Page on such LIBOR Determination Date, the Calculation Agent for such LIBOR
Security will request the principal London offices of each of four major
banks in the London interbank market selected by such Calculation Agent to
provide such Calculation Agent with its offered quotations for deposits in
U.S. dollars for the period of the specified Index Maturity, commencing on
such Interest Reset Date, to prime banks in the London interbank market at
approximately 11:00 a.m., London time, on such LIBOR Determination Date and
in a principal amount equal to an amount of not less than $1,000,000 that
is representative of a single transaction in such market at such time. If
at least two such quotations are provided, "LIBOR" for such Interest Reset
Period will be the arithmetic mean of such quotations. If fewer than two
such quotations are provided, "LIBOR" for such Interest Reset Period will
be the arithmetic mean of rates quoted by three major banks in The City of
New York selected by the Calculation Agent for such LIBOR Security at
approximately 11:00 a.m., New York City time, on such LIBOR Determination
Date for loans in U.S. dollars to leading European banks, for the period of
the specified Index Maturity, commencing on such Interest Reset Date, and
in a principal amount equal to an amount of not less than $1,000,000 that
is representative of a single transaction in such market at such time;
provided, however, that if the banks selected as aforesaid by such
Calculation Agent are not quoting rates as mentioned in this sentence,
"LIBOR" for such Interest Reset Period will be the same as LIBOR for the
immediately preceding Interest Reset Period.
Treasury Rate Securities. Each Treasury Rate Security will bear interest
for each Interest Reset Period at the interest rate calculated with reference to
the Treasury Rate and the Spread or Spread Multiplier, if any, specified in such
Security and in the applicable Prospectus Supplement.
The "Treasury Rate" for each Interest Period generally will be the rate for
the auction held on the Treasury Rate Determination Date (as defined below) for
such Interest Reset Period of direct obligations of the United States ("Treasury
bills") having the Index Maturity specified in the applicable Prospectus
Supplement, as such rate shall be published in H.I5 (519) under the heading
"U.S. Government Securities -- Treasury bills -- auction average (investment)"
or, in the event that such rate is not published prior to 3:00 p.m., New York
City time, on the Calculation Date (as defined below) pertaining to such
Treasury Rate Determination Date, the auction average rate (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) on such Treasury Rate Determination Date as otherwise
announced by the United States Department of the Treasury. In the event that the
results of the auction of Treasury bills having the specified Index Maturity are
not published or reported as provided above by
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<PAGE> 80
3:00 p.m., New York City time, on such Calculation Date, or if no such auction
is held on such Treasury Rate Determination Date, then the "Treasury Rate" for
such Interest Reset Period will be calculated by the Calculation Agent for such
Treasury Rate Security and will be the yield to maturity (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis) of the arithmetic mean of the secondary market bid rates, as
of approximately 3:30 p.m., New York City time, on such Treasury Rate
Determination Date, of three leading primary United States government securities
dealers selected by such Calculation Agent for the issue of Treasury bills with
a remaining maturity closest to the specified Index Maturity; provided, however,
that if the dealers selected as aforesaid by such Calculation Agent are not
quoting bid rates as mentioned in this sentence, then the "Treasury Rate" for
such Interest Reset Period will be the same as the Treasury Rate for the
immediately preceding Interest Reset Period.
The "Treasury Rate Determination Date" for each Interest Reset Period will
be the day of the week in which the Interest Reset Date for such Interest Reset
Period falls on which Treasury bills would normally be auctioned. Treasury bills
are normally sold at auction on Monday of each week, unless that day is a legal
holiday, in which case the auction is normally held on the following Tuesday,
except that such auction may be held on the preceding Friday. If, as the result
of a legal holiday, an auction is so held on the preceding Friday, such Friday
will be the Treasury Rate Determination Date pertaining to the Interest Reset
Period commencing in the next succeeding week. If an auction date shall fall on
any day that would otherwise be an Interest Reset Date for a Treasury Rate
Security, then such Interest Reset Date shall instead be the business day
immediately following such auction date.
The "Calculation Date" pertaining to any Treasury Rate Determination Date
will be the first to occur of (a) the tenth calendar day after such Treasury
Rate Determination Date or, if such a day is not a business day, the next
succeeding business day or (b) the second business day preceding the date any
payment is required to be made for any period following the applicable Interest
Reset Date.
INDEXED SECURITIES
To the extent so specified in any Prospectus Supplement, any class of
Securities of a given Series may consist of Securities ("Indexed Securities") in
which the principal amount payable at the final scheduled Payment Date or
Distribution Date, as the case may be, for such class (the "Indexed Principal
Amount") is determined by reference to a measure (the "Index") which will be
related to:
(1) the difference in the rate of exchange between United States
dollars and a currency or composite currency (the "Indexed Currency")
specified in the applicable Prospectus Supplement (such Indexed Securities,
"Currency Indexed Securities");
(2) the difference in the price of a specified commodity (the "Indexed
Commodity") on specified dates (such Indexed Securities, "Commodity Indexed
Securities");
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(3) the difference in the level of a specified stock index (the "Stock
Index"), which may be based on U.S. or foreign stocks, on specified dates
(such Indexed Securities, "Stock Indexed Securities"); or
(4) such other objective price or economic measures as are described in
the applicable Prospectus Supplement.
The manner of determining the Indexed Principal Amount of an Indexed Security
and historical and other information concerning the Indexed Currency, the
Indexed Commodity, the Stock Index or other price or economic measures used in
such determination will be set forth in the applicable Prospectus Supplement,
together with information concerning tax consequences to the holders of such
Indexed Securities.
If the determination of the Indexed Principal Amount of an Indexed Security
is based on an Index calculated or announced by a third party and such third
party either suspends the calculation or announcement of such Index or changes
the basis upon which such Index is calculated (other than changes consistent
with policies in effect at the time such Indexed Security was issued and
permitted changes described in the applicable Prospectus Supplement), then such
Index will be calculated for purposes of such Indexed Security by an independent
calculation agent named in the applicable Prospectus Supplement on the same
basis, and subject to the same conditions and controls, as applied to the
original third party. If for any reason such Index cannot be calculated on the
same basis and subject to the same conditions and controls as applied to the
original third party, then the Indexed Principal Amount of such Indexed Security
will be calculated in the manner set forth in the applicable Prospectus
Supplement. Any determination of such independent calculation agent shall in the
absence of manifest error be binding on all parties.
Interest on an Indexed Security will be payable based on the amount
designated in the applicable Prospectus Supplement as the "Face Amount" of such
Indexed Security. The applicable Prospectus Supplement will describe whether the
principal amount of the related Indexed Security, if any, that would be payable
upon redemption or repayment prior to the applicable final scheduled Payment
Date or Distribution Date, as the case may be, will be the Face Amount of such
Indexed Security, the Indexed Principal Amount of such Indexed Security at the
time of redemption or repayment or another amount described in such Prospectus
Supplement. Investors should carefully evaluate the Index related to each
Indexed Security since the return of principal and the payment of interest on
the related Indexed Securities is based on such Index. One Index might move in a
favorable direction to investors while another could move in the opposite
direction. The related Prospectus Supplement will contain the material risks of
the applicable Index related to each Indexed Security, if any.
BOOK-ENTRY REGISTRATION
The Depositor expects that persons acquiring beneficial ownership interests
in the Securities of each Series will hold their interests through DTC in the
United States or, in the case of any Series of Notes, Cedel or Euroclear in
Europe. Each Class of Securities will be registered in the name of Cede & Co.
("Cede") as nominee for DTC. Cedel and Euroclear will hold omnibus positions
with respect to the Notes and, if the related
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Prospectus Supplement so provides, the Certificates on behalf of Cedel
Participants and Euroclear Participants, respectively, through customers'
securities accounts in Cedel's and Euroclear's name on the books of their
respective depositories (collectively, the "Depositories") which in turn will
hold such positions in customers' securities accounts in the Depositories' names
on the books of DTC. For additional information regarding clearance and
settlement procedures see "Annex I" hereto.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC accepts securities for deposit from its participating
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its participants are on file with the Commission.
Securityholders who are not Participants but desire to purchase, sell or
otherwise transfer ownership of Securities may do so only through Participants
(unless and until Definitive Certificates or Definitive Notes, each as defined
below, are issued). In addition, Securityholders will receive all distributions
of principal of, and interest on, the Securities, from the applicable Trustee or
any Indenture Trustee, as applicable (the "Applicable Trustee"), through DTC and
Participants. Securityholders will not receive or be entitled to receive
certificates representing their respective interests in the Securities, except
under the limited circumstances described below and such other circumstances, if
any, as may be specified in the related Prospectus Supplement.
Unless and until Definitive Securities are issued, it is anticipated that
the only Certificateholder of the Certificates and the only Noteholder of the
Notes, if any, will be Cede (other than the related Company, as described in the
related Prospectus Supplement) as nominee of DTC. Securityholders will not be
recognized by the Applicable Trustee as Certificateholders or as Noteholders, as
the case may be, as those terms are used in the Related Documents.
Securityholders will be permitted to exercise the rights of Certificateholders
or Noteholders, as the case may be, only indirectly through Participants and
DTC.
With respect to any Series of Securities issued in book-entry form, while
such Securities are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit distributions of principal of, and interest on,
the Securities. Participants with whom Securityholders have accounts with
respect to Securities are similarly required to make book-entry transfers and
receive and transmit such distributions on behalf of their
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respective Securityholders. Accordingly, although Securityholders will not
possess Securities, the Rules provide a mechanism by which Securityholders will
receive distributions and will be able to transfer their interests.
Transfers between Participants will occur in accordance with DTC Rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date, and any such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel or
Euroclear as a result of sales of Notes and, if the related Prospectus
Supplement so provides, Certificates by or through a Cedel Participant or
Euroclear Participant to a DTC Participant will be received with value on the
DTC settlement date but will be available in the relevant Cedel or Euroclear
cash account only as of the business day following settlement in DTC.
Cross-market transfers between persons directly holding Notes and, if the
related Prospectus Supplement so provides, Certificates or indirectly through
DTC, on the one hand, and directly or indirectly through Cedel Participants or
Euroclear Participants, on the other, will be effected in DTC in accordance with
DTC Rules on behalf of the relevant European international clearing system by
its Depository; however, such cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system in accordance with its rules and procedures and
within its established deadline (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depository to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same day
funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions to the Depositories.
With respect to any Series of Securities, Certificates and Notes (if any)
will be issued in registered form to Securityholders, or their nominees, rather
than to DTC (such Certificates and Notes being referred to herein as "Definitive
Certificates" and "Definitive Notes," respectively), only if:
(1) the Depositor advises the applicable Trustee or Indenture Trustee,
as the case may be, in writing that DTC is no longer willing or able to
discharge properly its responsibilities as nominee and depository with
respect to the Certificates or the Notes and the Depositor is unable to
locate a qualified successor;
(2) the Depositor at its sole option has advised any Trustee or the
applicable Indenture Trustee, as the case may be, in writing that it elects
to terminate the book-entry system through DTC; or
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(3) after the occurrence of an Event of Default, the holders
representing a majority of the Certificate Balance (a "Certificate
Majority") or a Note Majority advises any Trustee or the applicable
Indenture Trustee, as the case may be, through DTC that continuation of a
book-entry system is no longer in their best interests.
Upon issuance of Definitive Certificates or Definitive Notes to Securityholders,
such Certificates or Notes will be transferable directly (and not exclusively on
a book-entry basis) and registered holders will deal directly with any Trustee
or the applicable Indenture Trustee, as the case may be, with respect to
transfers, notices and distributions.
DTC has advised the Depositor that, unless and until Definitive
Certificates or Definitive Notes are issued, DTC will take any action permitted
to be taken by a Certificateholder or a Noteholder under the related Trust
Documents or Indenture only at the direction of one or more Participants to
whose DTC accounts the Certificates or Notes are credited. DTC has advised the
Depositor that DTC will take such action with respect to any fractional interest
of the Certificates or the Notes only at the direction of and on behalf of such
Participants beneficially owning a corresponding fractional interest of the
Certificates or the Notes. DTC may take actions, at the direction of the related
Participants, with respect to some Certificates or Notes which conflict with
actions taken with respect to other Certificates or Notes.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to Cedel is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in any of 32 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York the "Euroclear Operator"), under contract
with Euroclear Clearance Systems, S.C., a Belgian
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cooperative corporation (the "Cooperative"). All operations are conducted by the
Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including central
banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through, or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of Euroclear, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants and has no record of or relationship with persons holding
through Euroclear Participants.
Distributions with respect to Notes and, if the related Prospectus
Supplement so provides, Certificates held through Cedel or Euroclear will be
credited to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depository. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a beneficial holder of Notes and, if the related Prospectus
Supplement so provides, Certificates under the Agreement on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to its Depository's ability to effect such actions on
its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of interests in the Notes and, if the related
Prospectus Supplement so provides, the Certificates among Direct Participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Neither the Trust, the Seller, the Depositor, the Servicer, the Applicable
Trustee, any Indenture Trustee, nor any of the underwriters will have any
responsibility or obligation to any Participants, Cedel Participants or
Euroclear Participants or the persons for whom they act as nominees with respect
to:
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(1) the accuracy of any records maintained by DTC, Cedel, Euroclear or
any Participant;
(2) the payment by DTC, Cedel, Euroclear or any Participant of any
amount due to any beneficial owner in respect of the principal balance of,
or interest on, the Notes and, if the related prospectus supplement so
provides, the Certificates;
(3) the delivery by any Participant, Cedel Participant or Euroclear
Participant of any notice to any beneficial owner which is required or
permitted under the terms of the agreement to be given to Noteholders and,
if the related prospectus supplement so provides, Certificateholders; or
(4) any other action taken by DTC or its nominee as the Noteholder and,
if the related prospectus supplement so provides, the Certificateholder.
DEFINITIVE SECURITIES
The Notes, if any, and the Certificates of a given Series will be issued in
fully registered, certificated form ("Definitive Notes" and "Definitive
Certificates," respectively, and collectively referred to herein as "Definitive
Securities") to Noteholders or Certificateholders or their respective nominees,
rather than to DTC or its nominee, only if:
(1) the Servicer advises the Applicable Trustee in writing that DTC is
no longer willing or able to discharge properly its responsibilities as
depository with respect to such Securities and the Servicer is unable to
locate a qualified successor;
(2) the Servicer, at its option, elects to terminate the book-entry
system through DTC, or
(3) after the occurrence of an Event of Default or a Servicer Default
with respect to such Securities, holders representing at least a majority
of the outstanding principal amount of the Notes or the Certificates, as
the case may be, of such Series advise the Applicable Trustee through DTC
in writing that the continuation of a book-entry system through DTC (or a
successor thereto) with respect to such Notes or Certificates is no longer
in the best interest of the holders of such Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee will be required to notify all applicable
Securityholders of a given Series through Participants of the availability of
Definitive Securities. Upon surrender by DTC of the definitive certificates
representing the corresponding Securities and receipt of instructions for
re-registration, the Trust will reissue such Securities as Definitive Securities
to such Securityholders.
Distributions of principal of, and interest on, such Definitive Securities
will thereafter be made by the Applicable Trustee in accordance with the
procedures set forth in the related Indenture or the related Trust Agreement or
Pooling and Servicing Agreement, as applicable, directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by
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the Applicable Trustee. The final payment on any such Definitive Security,
however, will be made only upon presentation and surrender of such Definitive
Security at the office or agency specified in the notice of final distribution
to the applicable Securityholders.
Definitive Securities will be transferable and exchangeable at the offices
of the Applicable Trustee or of a registrar named in a notice delivered to
holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the Applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
LIST OF SECURITYHOLDERS
Three or more holders of the Notes of such Series or one or more holders of
such Notes evidencing not less than 25% of the aggregate outstanding principal
balance of such Notes may, by written request to the related Indenture Trustee,
obtain access to the list of all Noteholders maintained by such Indenture
Trustee for the purpose of communicating with other Noteholders with respect to
their rights under the related Indenture or under such Notes.
Three or more holders of the Certificates of such Series or one or more
holders of such Certificates evidencing not less than 25% of the Certificate
Balance of such Certificates may, by written request to the related Trustee,
obtain access to the list of all Certificateholders maintained by such Trustee
for the purpose of communicating with other Certificateholders with respect to
their rights under the related Trust Agreement or Pooling and Servicing
Agreement or under such Certificates.
REPORTS TO SECURITYHOLDERS
With respect to each Series of Securities that includes Notes, on or prior
to each Payment Date, the Servicer will prepare and provide to the related
Indenture Trustee a statement to be delivered to the related Noteholders on such
Payment Date. With respect to each Series of Securities, on or prior to each
Distribution Date, the Servicer will prepare and provide to the related Trustee
a statement to be delivered to the related Certificateholders. With respect to
each Series of Securities, each such statement to be delivered to the Indenture
Trustee and Noteholders will include (to the extent applicable) the following
information (and any other information so specified in the related Prospectus
Supplement) as to the Notes of such Series with respect to such Payment Date or
the period since the previous Payment Date, as applicable, and each such
statement to be delivered to the Trustee and Certificateholders will include (to
the extent applicable) the following information (and any other information so
specified in the related Prospectus Supplement) as to the Certificates of such
Series with respect to such Distribution Date or the period since the previous
Distribution Date, as applicable:
(1) the amount of the distribution allocable to principal of each class
of such Notes and to the Certificate Balance of each class of such
Certificates;
(2) the amount of the distribution allocable to interest on or with
respect to each class of Securities of such Series;
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(3) the Pool Balance as of the close of business on the last day of the
preceding Collection Period;
(4) the aggregate outstanding principal balance and the Note Pool
Factor for each class of such Notes, and the Certificate Balance and the
Certificate Pool Factor for each class of such Certificates, each after
giving effect to all payments reported under clause (1) above on such date;
(5) the amount of the Servicing Fee paid to the Servicer with respect
to the related Collection Period or Collection Periods, as the case may be;
(6) the Interest Rate or Pass-Through Rate for the next period for any
class of Notes or Certificates of such Series with variable or adjustable
rates;
(7) the amount of the aggregate realized losses, net of Recoveries, if
any, for such Collection Period;
(8) the Noteholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall, the Certificateholders' Interest Carryover
Shortfall and the Certificateholders' Principal Carryover Shortfall (each
as defined in the related Prospectus Supplement under "Description of the
Transfer and Servicing Agreements" or "Description of the Certificates", as
the case may be), if any, in each case as applicable to each class of
Securities, and the change in such amounts from the preceding statement;
(9) the aggregate Purchase Amounts paid by the Seller or the Servicer
in such Collection Period;
(10) the balance of the Reserve Account (if any) on such date, after
giving effect to changes therein on such date;
(11) for each such date during the Funding Period (if any), the
remaining Pre-Funded Amount;
(12) for the first such date that is on or immediately following the
end of the Funding Period (if any), the amount of any remaining Pre-Funded
Amount that has not been used to fund the purchase of Subsequent
Receivables and is being passed through as payments of principal on the
Securities of such Series;
(13) the amounts collected by the Servicer;
(14) the amounts received by the related Trust from the Servicer; and
(15) delinquency information relating to Receivables which are 30, 60
or 90 days delinquent.
Each amount set forth pursuant to subclauses (1), (2), (5) and (8) with
respect to the Notes or the Certificates of any Series will be expressed as a
dollar amount per $1,000 of the initial principal balance of such Notes or the
initial Certificate Balance of such Certificates, as applicable.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of each Trust, the Applicable Trustee
will mail to each
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person who at any time during such calendar year has been a Securityholder with
respect to such Trust and received any payment thereon a statement containing
certain information for the purposes of such Securityholder's preparation of
federal income tax returns. See "Federal Income Tax Consequences."
Those reports will not be financial statements prepared in accordance with
generally accepted accounting practices. So long as the Securities of a Series
are in book entry form, those monthly and annual unaudited reports will be sent
on behalf of the Trust only to Cede, as nominee of DTC and registered holder of
the Notes and the Certificates. DTC will forward such reports to Participants
and Indirect Participants, which in turn, will forward the reports to the
beneficial owners of the Securities in accordance with their own procedures. If
the Securities of a Series are not in book-entry form, such reports will be sent
by the Trustee directly to the registered holders of the Notes or Certificates,
as applicable.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes the material terms of each Sale and
Servicing Agreement or Pooling and Servicing Agreement, as the case may be,
pursuant to which a Trust will purchase Receivables from the Depositor and the
Servicer will agree to service such Receivables and each Trust Agreement or
Pooling and Servicing Agreement, as the case may be, pursuant to which a Trust
will be created and Certificates will be issued (collectively, the "Transfer and
Servicing Agreements"). Forms of the Transfer and Servicing Agreements have been
filed as exhibits to the Registration Statement of which this Prospectus forms a
part. This summary is subject to, and qualified in its entirety by reference to
the related Prospectus Supplement.
SALE AND ASSIGNMENT OF RECEIVABLES
On or prior to the Closing Date specified with respect to any given Trust
in the related Prospectus Supplement (the "Closing Date"), the Seller will sell
and assign to the Depositor, without recourse, the Initial Receivables of the
related Receivables Pool, including the security interests in the related
Financed Vehicles and all collections received or to be received on or after the
Cutoff Date and, with respect to Receivables which are Actuarial Receivables,
monies received prior to the Cutoff Date that are due on or after the Cutoff
Date, and the Depositor will transfer and assign to such Trust, without
recourse, pursuant to a Sale and Servicing Agreement or a Pooling and Servicing
Agreement, as applicable, its entire interest in the Initial Receivables of the
related Receivables Pool, including its security interests in the related
Financed Vehicles and all collections received or to be received with respect
thereto on or after the Cutoff Date and, with respect to Receivables which are
Actuarial Receivables, monies received prior to the Cutoff Date that are due on
or after the Cutoff Date. Each such Receivable will be identified in a schedule,
as may be amended to reflect any Subsequent Receivables, appearing as an exhibit
to such Pooling and Servicing Agreement or Sale and Servicing Agreement (a
"Schedule of Receivables"). The Applicable Trustee will, concurrently with such
sale and assignment, execute and deliver the related Notes and/or Certificates.
The related Prospectus
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Supplement for a given Trust will specify whether, and the terms, conditions and
manner under which, Subsequent Receivables will be sold by the Depositor to the
applicable Trust from time to time during any Funding Period on each date
specified as a transfer date in the related Prospectus Supplement (each, a
"Subsequent Transfer Date").
In each Sale and Servicing Agreement or Pooling and Servicing Agreement,
the Seller will represent and warrant to the applicable Trust, among other
things, that:
(1) as of the related Cutoff Date, the information provided in the
related Schedule of Receivables is correct in all material respects and the
computer tape supplied to the Applicable Trustee describing certain
characteristics of the related Receivables is correct in all material
respects as of the related Cutoff Date;
(2) the Obligor on each related Receivable has obtained physical damage
insurance covering the Financed Vehicle in accordance with the Seller's
normal requirements;
(3) at the Closing Date, or with respect to any Subsequent Receivables,
the applicable Subsequent Transfer Date, no right of rescission, setoff,
counterclaim or defense exists or has been asserted or threatened with
respect to any related Receivable;
(4) as of the Closing Date or the applicable Subsequent Transfer Date,
if any, as applicable, each of such Receivables is or will be secured by a
validly perfected priority first security interest in favor of the Seller
or appropriate action has been taken to obtain the same;
(5) each related Receivable, at the time it was originated, complied
and, as of the Closing Date or the applicable Subsequent Transfer Date, if
any, complies in all material respects with applicable federal and state
laws, including, without limitation, consumer credit, truth in lending,
equal credit opportunity and disclosure laws; and
(6) as of the related Cutoff Date, there are no liens or claims,
including liens for work, labor, materials or unpaid state or federal taxes
relating to any Financed Vehicle securing the related Receivable that are
or may be prior to or equal to the lien granted by such Receivable.
If the related Prospectus Supplement specifies that Subsequent Receivables
are to be acquired by a Trust, then during the related Funding Period, the
Depositor will be obligated to purchase from the Seller and sell to the Trust
the related Subsequent Receivables. The aggregate principal balance of the
Subsequent Receivables will be in an amount that the Seller anticipates will
equal the amount deposited in the Pre-Funding Account on the date of the
issuance of the related Series. On each Subsequent Transfer Date, the Seller
will sell and assign to the Depositor, without recourse, its entire interest in
the Subsequent Receivables identified in a schedule attached to a supplemental
conveyance relating to such Subsequent Receivables executed on such date by the
Depositor and the Seller. In connection with each purchase of Subsequent
Receivables, the Trust will be required to pay to the Depositor a cash purchase
price equal to the outstanding principal balance of each Subsequent Receivable
as of its Cutoff Date, which price the Depositor will pay to the
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Seller. The purchase price will be withdrawn form the Pre-Funding Account and
paid to the Depositor for payment to the Seller so long as the representations
and warranties set forth in the preceding paragraph and under "The Receivables
Pools -- General" apply to each Subsequent Receivable to be conveyed, and the
conditions set forth below are satisfied. The Seller will convey Subsequent
Receivables to the Depositor on each such Subsequent Transfer Date pursuant to
the applicable Subsequent Transfer Agreement (each, a "Subsequent Transfer
Agreement") executed by the Seller and the Depositor on the Subsequent Transfer
Date and including as an exhibit a schedule identifying the Subsequent
Receivables transferred on such date. The Seller will convey the Subsequent
Receivables to the Trust on such Subsequent Transfer Date pursuant to the
Pooling and Servicing Agreement or the Sale and Servicing Agreement and the
applicable Subsequent Transfer Assignment (each, a "Subsequent Transfer
Assignment") executed by the Depositor and the Applicable Trustee on the
Subsequent Transfer Date and including as an exhibit a schedule identifying the
Subsequent Receivables transferred on such date.
Any conveyance of Subsequent Receivables will be subject to the following
conditions, among others specified in the related Prospectus Supplement:
(1) each such Subsequent Receivable must satisfy the eligibility
criteria specified in the second preceding paragraph as of its Subsequent
Cutoff Date and such additional criteria as may be specified in the related
Prospectus Supplement;
(2) if and to the extent specified in the related Prospectus
Supplement, the third-party credit enhancement provider, if any, shall have
approved the transfer of such Subsequent Receivables to the Trust;
(3) neither the Seller nor the Depositor will have selected such
Subsequent Receivables in a manner that either believes is adverse to the
interests of the Securityholders;
(4) the Seller and the Depositor will deliver certain opinions of
counsel to the Applicable Trustee and the Rating Agencies with respect to
the validity of the conveyance of such Subsequent Receivables; and
(5) the Rating Agencies shall confirm that the ratings on the
Securities of such Series have not been withdrawn or reduced as a result of
the transfer of such Subsequent Receivables to the Applicable Trustee.
Following the end of the Funding Period, a current report on Form 8-K
containing a description of the Receivables, including the information with
respect to the Subsequent Receivables represented in the tables under "The
Receivables Pool" in the related Prospectus Supplement, acquired by the Trust as
of their respective Cutoff Dates will be filed with the Commission. As described
under "Certain Information Regarding the Securities -- Reports to
Securityholders," the monthly statement to Securityholders will disclose the
remaining Pre-Funded Amount during any Funding Period and the remaining
Pre-Funded Amount following the end of the Funding Period.
Pursuant to a Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Depositor, the Seller, the Servicer or the applicable Trustee
must promptly advise the
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others and the Indenture Trustee in writing upon a discovery of a breach of any
of the Seller's representations and warranties with respect to the related
Receivables. Unless any such breach shall have been cured by the last day of the
Collection Period following the discovery of such breach by the applicable
Trustee or receipt by the applicable Trustee of written notice from the
Depositor, the Seller or the Servicer of such breach, the Seller will be
obligated to repurchase any Receivable from the Trust in which the interests of
the Securityholders are materially and adversely affected by such breach as of
the last day of such Collection Period at a price equal to the unpaid principal
balance owed by the Obligor thereon plus interest thereon at the respective APR
to the last day of the month of repurchase (the "Purchase Amount"). The
repurchase obligation constitutes the sole remedy available to the
Certificateholders or the Trustee and any Noteholders or Indenture Trustee in
respect of such Trust for any such uncured breach.
Pursuant to each Sale and Servicing Agreement or Pooling and Servicing
Agreement to assure uniform quality in servicing the Receivables and to reduce
administrative costs, the related Trust will appoint the Servicer as custodian
of the Receivables. The Servicer, in its capacity as custodian, will hold the
Receivables and all electronic entries, documents, instruments and writings
relating thereto (each, a "Receivable File"), either directly or through one or
more subservicers, on behalf of the Trust for the benefit of Certificateholders.
The Servicer will covenant, among other things, that it grant extensions only in
accordance with the Sale and Servicing Agreement or Pooling and Servicing
Agreement and maintain the security interest in the related Financed Vehicles.
The Servicer will be required to purchase the related Receivables for which such
covenants are breached.
The Receivables will not be stamped or otherwise marked to reflect the sale
and assignment of the Receivables to the Trust and will not be segregated from
other receivables held by the Servicer. The Depositor will cause the accounting
records and computer systems used by the Depositor as a master record of the
Receivables conveyed by it to the Trust to be marked to reflect the sale and
assignment of the Receivables to the Trust, and will file UCC financing
statements reflecting such sale and assignment with appropriate governmental
authorities. The Seller will cause its accounting records and computer systems
to be marked to reflect the sale and assignment of the related Receivables to
the Depositor, and will file UCC financing statements reflecting such sale and
assignment, with appropriate governmental authorities. The Obligors under the
Receivables will not be notified of the sale and assignment of the Receivables
to the Trust. See "The Trusts" and "Certain Legal Aspects of the Receivables."
ACCOUNTS
With respect to each Trust that issues Notes, one or more accounts will be
established in the name of the Indenture Trustee on behalf of the related
Noteholders and Certificateholders, into which all payments made on or with
respect to the related Receivables will be deposited (the "Collection Account").
The Servicer will establish and maintain with such Indenture Trustee an account,
in the name of such Indenture Trustee on behalf of such Noteholders, into which
amounts released from the Collection Account and any Pre-Funding Account,
Reserve Account or other credit enhancement for payment to such Noteholders will
be deposited and from which all distributions to such Noteholders
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will be made (the "Note Distribution Account"). The Servicer will establish and
maintain with the related Trustee an account, in the name of such Trustee on
behalf of such Certificateholders, into which amounts released from the
Collection Account and any Pre-Funding Account, Reserve Account or other credit
or cash flow enhancement for distribution to such Certificateholders will be
deposited and from which all distributions to such Certificateholders will be
made (the "Certificate Distribution Account"). With respect to each Trust that
does not issue Notes, the Servicer will also establish and maintain the
Collection Account and any other Trust Account in the name of the related
Trustee on behalf of the related Certificateholders.
If so provided in the related Prospectus Supplement, the Servicer will
establish for each Series an additional account (the "Payahead Account"), in the
name of the related Indenture Trustee on behalf of the Noteholders, into which,
to the extent required by the Sale and Servicing Agreement or Pooling and
Servicing Agreement, early payments by or on behalf of Obligors on Actuarial
Receivables will be deposited until such time as the payment becomes due. Until
such time as payments are transferred from the Payahead Account to the
Collection Account, they will not constitute collected interest or collected
principal and will not be available for distribution to the applicable
Noteholders or Certificateholders. The Payahead Account will initially be
maintained with the applicable Indenture Trustee or, in the case of each Trust
that does not issue Notes, the applicable Trustee.
Any other accounts to be established with respect to a Trust, including any
Pre-Funding Account or any Reserve Account, will be described in the related
Prospectus Supplement.
For any Series of Securities, funds in the Collection Account, the Note
Distribution Account and any Pre-Funding Account, Reserve Account and other
accounts identified as such in the related Prospectus Supplement (collectively,
the "Trust Accounts") and the Certificate Distribution Account will be invested
as provided in the related Sale and Servicing Agreement or Pooling and Servicing
Agreement in Eligible Investments. "Eligible Investments" mean book-entry
securities, negotiable instruments or securities represented by instruments in
bearer or registered form which evidence:
1. direct obligations of, and obligations fully guaranteed as to timely
payment by, the United States of America;
2. demand deposits, time deposits or certificates of deposit of any
depository institution (including the Depositor or any affiliate of the
Depositor) or trust company incorporated under the laws of the United
States of America or any state thereof or the District of Columbia (or any
domestic branch of a foreign bank) and subject to supervision and
examination by Federal or state banking or depository institution
authorities (including depository receipts issued by any such institution
or trust company as custodian with respect to any obligation referred to in
clause (1) above or portion of such obligation for the benefit of the
holders of such depository receipts); provided, however, that at the time
of the investment or contractual commitment to invest therein (which shall
be deemed to be made again each time funds are reinvested following each
Distribution Date), the commercial paper or other short-term senior
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unsecured debt obligations (other than such obligations the rating of which
is based on the credit of a Person other than such depository institution
or trust company) of such depository institution or trust company shall
have a credit rating from Standard & Poor's of A-1+ and from Moody's of
P-1;
3. commercial paper (including commercial paper of the Depositor or any
affiliate of the Depositor) having, at the time of the investment or
contractual commitment to invest therein, a rating from Standard & Poor's
of A-1+ and from Moody's of P-1;
4. investments in money market funds (including funds for which the
Depositor, the Trustee or the Owner Trustee or any of their respective
Affiliates is investment manager or advisor) having a rating from Standard
& Poor's Structured Ratings Group of AAA-m or AAAm-G and from Moody's
Investors Service, Inc. of Aaa;
5. bankers' acceptances issued by any depository institution or trust
company referred to in clause (2) above;
6. repurchase obligations with respect to any security that is a direct
obligation of, or fully guaranteed by, the United States of America or any
agency or instrumentality thereof the obligations of which are backed by
the full faith and credit of the United States of America, in either case
entered into with a depository institution or trust company (acting as
principal) referred to in clause (2) above; and
7. any other investment which would not cause any Rating Agency to
downgrade or withdraw its then current rating of the Securities of a
Series.
Investments will consist of Eligible Investments only to the extent that
the investments would not require registration of the related Trust as an
"investment company" under the Investment Company Act of 1940, as amended.
Subject to certain conditions, Eligible Investments may include securities or
other obligations issued by the Depositor or its affiliates or trusts originated
by the Depositor or its affiliates. Except as described below, Eligible
Investments are limited to obligations or securities that mature not later than
the business day before the date on which the funds invested in such Eligible
Investments are required to be withdrawn from the Trust Accounts or the
Certificate Distribution Account. However, to the extent permitted by the Rating
Agencies, funds in any Reserve Account may be invested in securities that will
not mature prior to the date of the next distribution with respect to such
Certificates or Notes and will not be sold to meet any shortfalls. Thus, the
amount of cash in any Reserve Account at any time may be less than the balance
of the Reserve Account. If the amount required to be withdrawn from any Reserve
Account to cover shortfalls in collections on the related Receivables (as
provided in the related Prospectus Supplement) exceeds the amount of cash in the
Reserve Account, a temporary shortfall in the amounts distributed to the related
Noteholders or Certificateholders could result, which could, in turn, increase
the average life of the Notes or the Certificates of such Series. Except as
otherwise specified in the related Prospectus Supplement, investment earnings on
funds deposited in the Trust Accounts and the Certificate Distribution Account,
net of losses and investment expenses (collectively, "Investment Earnings"),
will be
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deposited in the applicable Collection Account on each Distribution Date or
Payment Date and will be treated as collections of interest on the related
Receivables.
The Trust Accounts and the Certificate Distribution Account will be
maintained as Eligible Deposit Accounts. "Eligible Deposit Account" means either
(a) a segregated account with an Eligible Institution satisfying the criteria
set forth in clause (b) of the definition thereof below or (b) a segregated
trust account with the corporate trust department of a depository institution
(other than the Depositor or any affiliate of the Depositor) organized under the
laws of the United States of America or any one of the states thereof or the
District of Columbia (or any domestic branch of a foreign bank), having
corporate trust powers and acting as trustee for funds deposited in such
account, so long as any of the securities of such depository institution have a
credit rating from each Rating Agency in one of its generic rating categories
which signifies investment grade (an "Eligible Trust Company"). "Eligible
Institution" means, with respect to a Trust (a) the corporate trust department
of the related Indenture Trustee or Trustee, as applicable, or (b) a depository
institution organized under the laws of the United States of America or any one
of the states thereof or the District of Columbia (or any domestic branch of a
foreign bank), (1) which has either (A) a long-term senior unsecured debt rating
acceptable to the Rating Agencies or (B) a short-term senior unsecured debt
rating or certificate of deposit rating acceptable to the Rating Agencies and
(2) whose deposits are insured by the FDIC.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables held by any Trust and will, in a manner, consistent
with the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, apply such collection procedures as it follows with respect to other
automobile retail installment sale contracts it services. Consistent with its
normal procedures, the Servicer may, in its discretion, arrange with the Obligor
on a Receivable to extend or modify the payment schedule, subject to certain
limitations contained in any Sale and Servicing Agreement or Pooling and
Servicing Agreement. Pursuant to any Sale and Servicing Agreement or Pooling and
Servicing Agreement, the Servicer or the applicable Trustee will inform the
other party and the Indenture Trustee in writing promptly upon the discovery of
the breach by the Servicer of certain covenants made by it. If the Servicer
fails to cure the breaches with respect to a related Receivable by the last day
of the second Collection Period following such discovery (or, at the Servicer's
option, the last day of the first following Collection Period), the Servicer
will be obligated to purchase for the Purchase Amount any Receivable in which
the interests of the Securityholders are materially and adversely affected by
the breach. See "Certain Legal Aspects of the Receivables."
PAYMENTS ON RECEIVABLES
With respect to each Trust, the Servicer will deposit all payments on the
related Receivables (from whatever source), other than any late fees, prepayment
charges and other administrative fees or similar charges retained by the
Servicer as part of its compensation, and all proceeds of such Receivables
collected during each collection period specified in
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the related Prospectus Supplement (each, a "Collection Period") into the related
Collection Account within two business days after receipt thereof. However, in
the event that the Servicer satisfies certain requirements for monthly
remittances and none of the related Rating Agencies, after 10 days prior notice,
shall have notified the Depositor, the Servicer, the related Trustee or the
Indenture Trustee in writing that monthly deposits by the Servicer in and of
itself will result in a reduction or withdrawal of the then-current ratings of
the Securities of a series, then for so long as Mellon Bank, N.A. is the
Servicer and provided that (1) there exists no Servicer Default and (2) each
other condition to making monthly deposits as may be specified by the Rating
Agencies or set forth in the related Prospectus Supplement is satisfied, the
Servicer will not be required to deposit such amounts into the Collection
Account until on or before the business day preceding the applicable
Distribution Date or Payment Date. Pending deposit into the Collection Account,
collections may be invested by the Servicer at its own risk and for its own
benefit and will not be segregated from its own funds. If the Servicer were
unable to remit such funds, Securityholders might incur a loss. In such event,
the Servicer will also deposit the aggregate Purchase Amount of Receivables
repurchased by the Seller or purchased by the Servicer into the applicable
Collection Account on or before the business day preceding the applicable
Distribution Date or Payment Date. Pending deposit into the applicable
Collection Account, collections may be invested by the Servicer at its own risk
and for its own benefit, and will not be segregated from funds of the Servicer.
Collections on an Actuarial Receivable made during a Collection Period will
be applied first to repay any outstanding Advances on Actuarial Receivables made
by the Servicer with respect to such Receivable (as described below), and to the
extent that collections on an Actuarial Receivable during a Collection Period
exceed the outstanding Advances on Actuarial Receivables, the collections will
then be applied to the scheduled payment on such Receivable. If any collections
remaining after the scheduled payment is made are insufficient to prepay the
Actuarial Receivable in full, then, unless otherwise provided in the related
Prospectus Supplement, generally such remaining collections (the "Payaheads")
shall be transferred to and kept in the Payahead Account, until such later
Collection Period as the collections may be transferred to the Collection
Account and applied either to the scheduled payment or to prepay such Receivable
in full. The scheduled payment with respect to an Actuarial Receivable is that
portion of the payment required to be made by the related Obligor during each
calendar month sufficient to amortize the principal balance thereof under the
actuarial method over the term of the Receivable (except in the case of a
Balloon Loan to the extent of the Balloon Payment) and to provide interest at
the APR of such Receivable.
ADVANCES
To the extent the collections of interest and principal on an Actuarial
Receivable with respect to a Collection Period fall short of the respective
scheduled payment, the Sale and Servicing Agreement or Pooling and Servicing
Agreement will require the Servicer to make an Advance in the amount of such
shortfall. The Servicer will be obligated to make an Advance on an Actuarial
Receivable only to the extent that the Servicer, in its sole discretion, expects
to recoup such advance from subsequent collections or recoveries on
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such Receivable or other Actuarial Receivables in the related Receivables Pool.
The Servicer will deposit the Advance in the applicable Collection Account on or
before the business day preceding the applicable Distribution Date or Payment
Date. The Servicer will recoup its Advance from subsequent payments by or on
behalf of the respective Obligor or from insurance or liquidation proceeds with
respect to the Receivable and will release its right to reimbursement in
conjunction with its purchase of the Receivable as Servicer, or, upon the
determination that reimbursement from the preceding sources is unlikely, will
recoup its Advance from any collections made on other Actuarial Receivables in
the related Receivables Pool.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period, payable on each Distribution Date (other than the initial
Distribution Date), in an amount equal to the product of one-twelfth of the
specified percentage per annum (as set forth in the related Prospectus
Supplement, the "Servicing Fee Rate") and the Pool Balance as of the first day
of the related Collection Period (the "Servicing Fee"). The Servicing Fee,
together with any portion of the Servicing Fee that remains unpaid from prior
Distribution Dates or Payment Dates (the "Total Servicing Fee") will be paid
solely to the extent of the Total Distribution Amount. The Total Servicing Fee
will be paid prior to the distribution of any portion of the Interest
Distribution Amount to the Noteholders or the Certificateholders of the given
series.
The "Servicing Fee" will also include any late fees, prepayment charges and
other administrative fees or similar charges allowed by applicable law with
respect to the related Receivables and will be entitled to reimbursement from
such Trust for certain expenses. Payments by or on behalf of Obligors will be
allocated to scheduled payments and late fees and other charges in accordance
with the Servicer's normal practices and procedures.
The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of automobile receivables as an agent for their
beneficial owner, including collecting and posting all payments, responding to
inquiries of Obligors on the Receivables, investigating delinquencies, sending
payment coupons or coupon books to Obligors, paying costs of disposition of
defaults and policing the collateral. The Servicing Fee also will compensate the
Servicer for administering the particular Receivables Pool, accounting for
collections and furnishing monthly and annual statements to the related Trustee
and Indenture Trustee with respect to distributions and generating federal
income tax information for such Trust and for the related Noteholders and
Certificateholders. The Servicing Fee also will reimburse the Servicer for
certain taxes, accounting fees, outside auditor fees, data processing costs and
other costs incurred in connection with administering the applicable Receivables
Pool.
MANDATORY PREPAYMENT
To the extent a Pre-Funding Account is specified in the related Prospectus
Supplement, the Securities will be prepaid in part on the Payment Date or
Distribution Date on which the Funding Period ends (or on the Payment Date or
Distribution Date
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immediately following the last day of the Funding Period, if the Funding Period
does not end on a Payment Date or Distribution Date) in the event that any
amount remains on deposit in the Pre-Funding Account after giving effect to the
purchase of Subsequent Receivables, if any, on such Payment Date or Distribution
Date. The aggregate principal amount of Securities to be prepaid will be an
amount equal to the amount then on deposit in the Pre-Funding Account in such
portions as specified in the related Prospectus Supplement. In such event, if
and to the extent specified in the related Prospectus Supplement, a limited
recourse mandatory prepayment premium (the "Prepayment Premium") may be payable
by the Trust to the offered Securityholders if the aggregate principal amount of
the offered Securities to be prepaid pursuant to such mandatory prepayment
exceeds such threshold amount as will be specified in the related Prospectus
Supplement. The amount of such Prepayment Premium, if any, will be specified in
the related Prospectus Supplement. A Trust's obligation to pay the Prepayment
Premium will be limited to funds which are received from the Seller as
liquidated damages for the failure to deliver Subsequent Receivables. No other
assets of the Trust will be available for the purpose of making such payment.
The ratings of any Series of Securities with respect to which a Prepayment
Premium is payable does not evaluate the Prepayment Premium or the likelihood
that the Prepayment Premium will be paid.
DISTRIBUTIONS
With respect to each Series of Securities, beginning on the Payment Date or
Distribution Date, as applicable, specified in the related Prospectus
Supplement, distributions of principal and interest (or, where applicable, of
principal or interest only) on each class of such Securities entitled thereto
will be made by the Applicable Trustee to the Noteholders and the
Certificateholders of such Series. The timing, calculation, allocation, order,
source, priorities of and requirements for all payments to each class of
Noteholders and all distributions to each class of Certificateholders of such
Series will be set forth in the related Prospectus Supplement.
With respect to each Trust, on each Payment Date and Distribution Date, as
applicable, collections on the related Receivables will be transferred from the
Collection Account to the Note Distribution Account, if any, and the Certificate
Distribution Account for distribution to Noteholders, if any, and
Certificateholders to the extent provided in the related Prospectus Supplement.
Credit enhancement, such as a Reserve Account, will be available to cover any
shortfalls in the amount available for distribution on such date to the extent
specified in the related Prospectus Supplement. As more fully described in the
related Prospectus Supplement, and unless otherwise specified therein,
distributions in respect of principal of a class of Securities of a given Series
will be subordinate to distributions in respect of interest on such class, and
distributions in respect of one or more classes of Certificates of such Series
may be subordinate to payments in respect of Notes, if any, of such Series or
other classes of Certificates of such Series.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement arrangements and
the provider thereof, if applicable, with respect to each class of Securities of
a given Series, if
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any, will be set forth in the related Prospectus Supplement. If and to the
extent provided in the related Prospectus Supplement, credit and cash flow
enhancement may be in the form of subordination of one or more classes of
Securities, Reserve Accounts, a Yield Supplement Agreement, a Yield Supplement
Account, over-collateralization, letters of credit, credit or liquidity
facilities, surety bonds, guaranteed investment contracts, swaps or other
interest rate protection agreements, repurchase obligations, yield supplement
agreements, other agreements with respect to third party payments or other
support or cash deposits or any combination of two or more of the foregoing. If
specified in the applicable Prospectus Supplement, credit or cash flow
enhancement for a class of Securities may cover one or more other classes of
Securities of the same Series, and credit or cash flow enhancement for a Series
of Securities may cover one or more other Series of Securities.
The presence of a Reserve Account, a Yield Supplement Agreement, a Yield
Supplement Account and other forms of credit enhancement for the benefit of any
class or Series of Securities is intended to enhance the likelihood of receipt
by the Securityholders of such class or Series of the full amount of principal
and interest due thereon and to decrease the likelihood that such
Securityholders will experience losses. Unless otherwise specified in the
related Prospectus Supplement, the credit enhancement for a class or Series of
Securities will not provide protection against all risks of loss and will not
guarantee repayment of the entire principal balance and interest thereon. If
losses occur which exceed the amount covered by any credit enhancement or which
are not covered by any credit enhancement, Securityholders of any class or
Series will bear their allocable share of deficiencies, as described in the
related Prospectus Supplement. In addition, if a form of credit enhancement
covers more than one Series of Securities, Securityholders of any such Series
will be subject to the risk that such credit enhancement will be exhausted by
the claims of Securityholders of other Series.
Reserve Account. If so provided in the related Prospectus Supplement,
pursuant to the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Depositor will establish for a Series or class of Securities an
account, as specified in the related Prospectus Supplement (the "Reserve
Account"), which will be maintained with the related Trustee or Indenture
Trustee, as applicable. Unless otherwise provided in the related Prospectus
Supplement, the Reserve Account will be funded by an initial deposit by the
Depositor on the Closing Date in the amount set forth in the related Prospectus
Supplement and, if the related Series has a Funding Period, will also be funded
on each Subsequent Transfer Date to the extent described in the related
Prospectus Supplement. As further described in the related Prospectus
Supplement, the amount on deposit in the Reserve Account will be increased on
each Distribution Date or Payment Date thereafter up to the Specified Reserve
Account Balance (as defined in the related Prospectus Supplement under "Summary
of Terms -- Reserve Account" or "-- Reserve Fund," as the case may be) by the
deposit therein of the amount of collections on the related Receivables
remaining on each such Distribution Date or Payment Date after the payment of
all other required payments and distributions on such date. The related
Prospectus Supplement will describe the circumstances and manner under which
distributions may be made out of the Reserve Account, either to holders of the
Securities covered thereby or to the Depositor.
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Yield Supplement Account; Yield Supplement Agreement. If so provided in
the related Prospectus Supplement, the Depositor or a third party will enter
into a Yield Supplement Agreement and/or establish a Yield Supplement Account
with the related Indenture Trustee or related Trustee for the benefit of the
holders of the related Securities. A Yield Supplement Agreement or a Yield
Supplement Account will be designed to provide payments to the Securityholders
in respect of Receivables the Contract Rate of which is less than the Required
Rate. A Yield Supplement Account may be an asset of the Obligor under the Yield
Supplement Agreement holding funds to secure the obligation of such Obligor to
make payments under such Yield Supplement Agreement or, in the case of a Trust
that is not classified as a grantor trust, may be an asset of the Trust from
which cash may periodically be withdrawn to provide payments to the
Securityholders.
NET DEPOSITS
As an administrative convenience, if the Servicer is not required to remit
collections within two business days of receipt thereof (see "-- Payments on
Receivables" above), the Servicer will be permitted to make the deposit of
collections, aggregate Advances and Purchase Amounts for any Trust for or with
respect to the related Collection Period net of distributions to be made to the
Servicer for such Trust with respect to such Collection Period. The Servicer may
cause to be made a single, net transfer from the Collection Account to the
related Payahead Account, if any, or vice versa. The Servicer, however, will
account to the Trustee, any Indenture Trustee, the Noteholders, if any, and the
Certificateholders with respect to each Trust as if all deposits, distributions
and transfers were made individually. With respect to any Trust that issues both
Certificates and Notes, if the related Payment Dates do not coincide with
Distribution Dates, all distributions, deposits or other remittances made on a
Payment Date will be treated as having been distributed, deposited or remitted
on the Distribution Date for the applicable Collection Period for purposes of
determining other amounts required to be distributed, deposited or otherwise
remitted on such Distribution Date.
STATEMENTS TO TRUSTEES AND TRUST
Prior to each Distribution Date or Payment Date with respect to each Series
of Securities, the Servicer will provide to the applicable Indenture Trustee, if
any, and the applicable Trustee as of the close of business on the last day of
the preceding Collection Period a statement setting forth substantially the same
information as is required to be provided in the periodic reports provided to
Securityholders of such series described under "Certain Information Regarding
the Securities-Reports to Securityholders."
EVIDENCE AS TO COMPLIANCE
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that a firm of independent public accountants will furnish to the
related Trust and Indenture Trustee or Trustee, as applicable, on or before
October 31 of each year a statement as to compliance by the Servicer during the
preceding twelve months ended June 30 (or, in the case of the first such
certificate with respect to each Trust, the period from the applicable Closing
Date to June 30 of such calendar year), with certain standards
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relating to the servicing of the Receivables under the Sale and Servicing
Agreement or Pooling and Servicing Agreement, as the case may be.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
also provide for delivery to the related Indenture Trustee or Trustee, as
applicable, concurrently with the delivery of the statement of compliance
referred to above, of a certificate signed by an officer of the Servicer stating
that the Servicer has fulfilled its obligations under the Sale and Servicing
Agreement or Pooling and Servicing Agreement, as applicable, throughout the
preceding twelve months ended June 30 (or, in the case of the first such
certificate, from the Closing Date to June 30 of such calendar year) or, if
there has been a default in the fulfillment of any such obligation, describing
each such default. The Servicer has agreed to give each Indenture Trustee and
each Trustee notice of certain Servicer Defaults under the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Applicable Trustee at
the address specified in the related Prospectus Supplement.
CERTAIN MATTERS REGARDING THE SERVICER
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that the Servicer may not resign from its obligations and duties as
Servicer thereunder, except upon determination that the Servicer's performance
of such duties is no longer permissible under applicable law or if such
resignation is required by regulatory authorities. Such resignation will become
effective on the earlier of the date the Servicer is required by regulatory
authorities to resign or the date on which the related Indenture Trustee or
Trustee, as applicable, or a successor servicer has assumed the Servicer's
servicing obligations and duties under such Sale and Servicing Agreement or
Pooling and Servicing Agreement.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
further provide that neither the Servicer nor any of its directors, officers,
employees and agents will be under any liability to the related Trust or the
related Noteholders or Certificateholders for taking any action or for
refraining from taking any action pursuant to such Sale and Servicing Agreement
or Pooling and Servicing Agreement or for errors in judgment; provided, however,
that neither the Servicer nor any such person will be protected against any
liability that would otherwise be imposed by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties thereunder or by
reason of reckless disregard of its obligations and duties thereunder. In
addition, each Sale and Servicing Agreement and Pooling and Servicing Agreement
will provide that the Servicer is under no obligation to appear in, prosecute or
defend any legal action that is incidental to its servicing responsibilities
under such Sale and Servicing Agreement or Pooling and Servicing Agreement and
that, in its opinion, may cause it to incur any expense or liability.
Under the circumstances specified in each Sale and Servicing Agreement and
Pooling and Servicing Agreement, any entity into which the Servicer may be
merged or
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consolidated, or any entity resulting from any merger or consolidation to which
the Servicer is a party, or any entity succeeding to the business of the
Servicer or which corporation or other entity in each of the foregoing cases
assumes the obligations of the Servicer, will be the successor of the Servicer
under such Sale and Servicing Agreement or Pooling and Servicing Agreement.
The Servicer may appoint one or more subservicers to perform all or any
portion of its obligations under the Pooling and Servicing Agreement or Sale and
Servicing Agreement; however, the Servicer shall remain obligated and be liable
to the Trust, the related Trustee and any Indenture Trustee and the
Securityholders for the servicing and administering of the related Receivables
as if the Servicer alone were servicing and administering such Receivables.
SERVICER DEFAULT
"Servicer Default" under each Sale and Servicing Agreement and Pooling and
Servicing Agreement will consist of:
(1) any failure by the Servicer to deliver to the Applicable Trustee
for deposit in any of the Trust Accounts or the Certificate Distribution
Account any required payment or to direct the Applicable Trustee to make
any required distributions therefrom, which failure continues unremedied
for three business days after written notice is received by the Servicer
from the Applicable Trustee, or after discovery of such failure by the
Servicer;
(2) any failure by the Servicer duly to observe or perform in any
material respect any other covenant or agreement in such Sale and Servicing
Agreement or Pooling and Servicing Agreement, which failure materially and
adversely affects the rights of the Noteholders or the Certificateholders
of the related Series and which continues unremedied for 30 days after the
giving of written notice of such failure (x) to the Servicer by the
Applicable Trustee or (y) to the Servicer and to the Applicable Trustee by
holders of Notes or Certificates of such Series, as applicable, evidencing
not less than 25% in aggregate outstanding principal amount of such Notes
or of such Certificate Balance; and
(3) the occurrence of an Insolvency Event with respect to the Servicer.
"Insolvency Event" means, with respect to any Person, any of the following
events or actions: certain events of insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings with respect to such
Person and certain actions by such Person indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations.
RIGHTS UPON SERVICER DEFAULT
In the case of any Trust that has issued Notes, unless otherwise provided
in the related Prospectus Supplement, as long as a Servicer Default under a Sale
and Servicing Agreement remains unremedied, the related Indenture Trustee or
holders of Notes of the related Series evidencing not less than 25% of principal
amount of such Notes then
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outstanding may terminate all the rights and obligations of the Servicer under
such Sale and Servicing Agreement, whereupon such Indenture Trustee or a
successor servicer appointed by such Indenture Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under such Sale and
Servicing Agreement. In the case of any Trust that has not issued Notes, as long
as a Servicer Default under the related Pooling and Servicing Agreement remains
unremedied, the related Trustee or holders of Certificates of the related Series
evidencing not less than a majority of the aggregate outstanding principal
balance of such Certificates may terminate all the rights and obligations of the
Servicer under such Pooling and Servicing Agreement, whereupon such Trustee or a
successor Servicer appointed by such Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under such Pooling and
Servicing Agreement. If, however, a conservator or receiver has been appointed
for the Servicer, and no Servicer Default other than such appointment has
occurred, such conservator or receiver may have the power to prevent such
Indenture Trustee, such Noteholders, such Trustee or such Certificateholders
from effecting a transfer of servicing. In the event that such Indenture Trustee
or Trustee is unwilling or unable to so act, it may appoint, or petition a court
of competent jurisdiction for the appointment of, a successor with a net worth
of at least $50,000,000 and whose regular business includes the servicing of
automotive receivables. In no event may the servicing compensation to be paid to
such successor be greater than the servicing compensation payable to the
Servicer under such Sale and Servicing Agreement or Pooling and Servicing
Agreement.
WAIVER OF PAST DEFAULTS
With respect to each Trust that has issued Notes, the holders of Notes
evidencing at least a majority in aggregate principal amount of the then
outstanding Notes of the related Series (or the holders of the Certificates of
such Series evidencing not less than a majority of the aggregate outstanding
Certificate Balance, in the case of any default which does not adversely affect
the related Indenture Trustee or such Noteholders) may, on behalf of all such
Noteholders and Certificateholders, waive any default by the Servicer in the
performance of its obligations under the related Sale and Servicing Agreement
and its consequences, except a default in making any required deposits to or
payments from any of the Trust Accounts or to the Certificate Distribution
Account in accordance with such Sale and Servicing Agreement. With respect to
each Trust that has not issued Notes, holders of Certificates of such Series
evidencing not less than a majority of the principal amount of such Certificates
then outstanding, in the case of any default which does not adversely affect the
related Trustee may, on behalf of all such Certificateholders, waive any default
by the Servicer in the performance of its obligations under the related Pooling
and Servicing Agreement and its consequences, except a default in making any
required deposits to or payments from the Certificate Distribution Account or
the related Trust Accounts in accordance with such Pooling and Servicing
Agreement. No such waiver will impair such Noteholders' or Certificateholders'
rights with respect to subsequent defaults.
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AMENDMENT
Each of the Transfer and Servicing Agreements may be amended by the parties
thereto, without the consent of the related Noteholders or Certificateholders,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Transfer and Servicing Agreements or
of modifying in any manner the rights of such Noteholders or Certificateholders;
provided that such action will not, in the opinion of counsel satisfactory to
the related Trustee or Indenture Trustee, as applicable, materially and
adversely affect the interest of any such Noteholder or Certificateholder. The
Transfer and Servicing Agreements may also be amended by the Depositor, the
Servicer, the Seller, the related Trustee and any related Indenture Trustee with
the consent of the holders of Notes evidencing at least a majority in aggregate
principal amount of then outstanding Notes, if any, of the related Series and
the holders of the Certificates of such Series evidencing at least a majority of
the aggregate principal amount of such Certificates then outstanding, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of such Transfer and Servicing Agreements or of modifying in
any manner the rights of such Noteholders or Certificateholders; provided,
however, that no such amendment may (x) increase or reduce in any manner the
amount of, or accelerate or delay the timing of, collections of payments on the
related Receivables or distributions that are required to be made for the
benefit of such Noteholders or Certificateholders or (y) reduce the aforesaid
percentage of the aggregate outstanding principal balance of the Notes or
Certificates of such Series which are required to consent to any such amendment,
without the consent of the holders of all the outstanding Notes or Certificates,
as the case may be, of such Series.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given Series and the
satisfaction and discharge of the related Indenture, the related Trustee will
succeed to all the rights and duties of the Indenture Trustee, and the
Certificateholders of such Series will succeed to all the rights of the
Noteholders of such series, under the related Sale and Servicing Agreement,
except as otherwise provided therein.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the Depositor,
the Seller, the related Trustee and the related Indenture Trustee, if any,
pursuant to the Transfer and Servicing Agreements will terminate upon the
earlier of (1) the maturity or other liquidation of the last related Receivable
and the disposition of any amounts received upon liquidation of any such
remaining Receivables, (2) the payment to Noteholders, if any, and
Certificateholders of the related Series of all amounts required to be paid to
them pursuant to the Transfer and Servicing Agreements and (3) the occurrence of
either event described below.
In order to avoid excessive administrative expense, the Servicer will be
permitted at its option to purchase from each Trust, as of the end of any
applicable Collection Period, if the then outstanding Pool Balance with respect
to the Receivables held by such Trust is
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equal to or less than a specified percentage (not more than 10%) of the initial
Pool Balance (as defined in the related Prospectus Supplement, the "Initial Pool
Balance"), all remaining related Receivables at a price equal to an amount
which, when added to the amounts on deposit in the Collection Account for such
Series for such Distribution Date, equals the unpaid principal balances of the
Securities of such Series, plus accrued and unpaid interest thereon. The
optional termination provision allows the Servicer administrative convenience.
Once the outstanding principal balance of the Receivables is reduced to a small
percentage of the Initial Pool Balance, it is often not economical for the
Servicer to service the Receivables for the Trust.
If and to the extent provided in the related Prospectus Supplement with
respect to a Trust, the Applicable Trustee will, within ten days following a
Distribution Date or Payment Date as of which the Pool Balance is equal to or
less than 5% of the Initial Pool Balance and the Servicer has not exercised its
option to repurchase the Receivables, conduct an Auction sale by soliciting bids
for the purchase of the Receivables remaining in such Trust, in the manner and
subject to the terms and conditions set forth below. An Auction sale could be
included in the structure of a Series in order to provide investors a more
identifiable final maturity.
In the event that satisfactory bids are received as described below, the
sale proceeds will be distributed to Securityholders on the second Distribution
Date succeeding such Record Date. Any purchaser of the Receivables must agree to
the continuation of Mellon Bank, N.A. as Servicer on terms substantially similar
to those in the related Sale and Servicing Agreement or Pooling and Servicing
Agreement. Any such sale will effect early retirement of the Securities. The
Applicable Trustee must receive at least two bids from prospective purchasers
that are considered at the time to be competitive participants in the market for
motor vehicle retail installment sale contracts. The highest bid may not be less
than the fair market value of such Receivables and must equal the greater of (a)
the aggregate purchase price for the Receivables (including liquidated
receivables), plus the appraised value of any other property held by the Trust
(less liquidation expenses) or (b) an amount that when added to amounts on
deposit in the Collection Account for such Series available for distribution to
Securityholders for such second succeeding Determination Date would result in
proceeds sufficient to distribute the amount of the unpaid principal balances of
the Securities of such Series plus accrued and unpaid interest therein, and the
Total Servicing Fee payable on such final Distribution Date. The Applicable
Trustee may consult with financial advisors, including any underwriter, to
determine if the fair market value of such Receivables has been offered. Upon
the receipt of such bids, the Applicable Trustee shall sell and assign such
Receivables to the highest bidder and the Securities shall be retired on such
Distribution Date. If any of the foregoing conditions are not met, the
Applicable Trustee will not consummate such sale and will not be under any
obligation to solicit any further bids or otherwise negotiate any future sale of
Receivables remaining in the Trust. In such event, however, the Applicable
Trustee may from time to time solicit bids in the future for the purchase of
such Receivables upon the same terms described above.
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In the event that an Auction Sale is consummated, the Applicable Trustee
will give written notice of termination to each Securityholder of record. The
final distribution to each Securityholder will be made only upon surrender and
cancellation of such holder's Securities at any office or agency of the
Applicable Trustee specified for such purpose. Any funds remaining in the Trust,
after the applicable Trustee has taken certain measures to locate a
Securityholder and such measures have failed, will be distributed to the
Depositor.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related Series will be redeemed concurrently with
either of the events specified above, and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement or Pooling and Servicing Agreement
will effect early retirement of the Certificates of such Series.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
RIGHTS IN THE RECEIVABLES
The Receivables are "chattel paper" as defined in the UCC. Pursuant to the
UCC, for most purposes, a sale of chattel paper is treated in a manner similar
to a transaction creating a security interest in chattel paper. The Depositor
will cause appropriate financing statements to be filed with the appropriate
governmental authorities in the Commonwealth of Pennsylvania to perfect the
interest of the Trust in its purchase of the Receivables from the Depositor and
in the Depositor's purchase of the Receivables from the Seller.
Pursuant to the related Pooling and Servicing Agreement or Sale and
Servicing Agreement, the Servicer will hold the Receivables, either directly or
through subservicers, as custodian for the Trust and Indenture Trustee following
the sale and assignment of the Receivables to the Trust. The Depositor will take
such action as is required to perfect the rights of the Trust and the Indenture
Trustee in the Receivables. The Receivables will not be segregated, stamped or
otherwise marked to indicate that they have been sold to the Trust. If, through
inadvertence or otherwise, another party purchases (or takes a security interest
in) the Receivables for new value in the ordinary course of business and takes
possession of the Receivables without actual knowledge of the Trust's interest,
the purchaser (or secured party) will acquire an interest in the Receivables
superior to the interest of the Trust.
Under the related Pooling and Servicing Agreement or Sale and Servicing
Agreement, the Servicer will be obligated from time to time to take such actions
as are necessary to protect and perfect the Trust's interest in the Receivables
and their proceeds.
SECURITY INTERESTS IN THE FINANCED VEHICLES
Generally, motor vehicle retail installment sale contracts, such as the
Receivables, evidence loans to obligors to finance the purchase of such motor
vehicles. The Receivables also constitute personal property security agreements
and include grants of security interests in the vehicles under the UCC.
Perfection of security interests in motor vehicles is generally governed by the
motor vehicle registration laws of the state in which the vehicle
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is located. In most states, a security interest in the vehicle is perfected by
notation of the secured party's lien on the vehicle's certificate of title.
The Bank's practice is to take such action as is required in order to
perfect its security interest in a Financed Vehicle under the laws of the
jurisdiction in which the Financed Vehicle is registered. If the Bank, because
of clerical error or otherwise, has failed to take such action with respect to a
Financed Vehicle, it will not have a perfected security interest in the Financed
Vehicle and its security interest may be subordinate to the interests of, among
others, subsequent purchasers of the Financed Vehicle that give value without
notice of the Bank's security interest and to whom a certificate of ownership is
issued in such purchaser's name, holders of perfected security interests in the
Financed Vehicle, and the trustee in bankruptcy of the Obligor. The Bank's
security interest may also be subordinate to such third parties in the event of
fraud or forgery by the Obligor or administrative error by state recording
officials or in the circumstances noted below. As described more fully below,
the Seller will warrant in the related Pooling and Servicing Agreement or Sale
and Servicing Agreement that an enforceable first priority perfected security
interest with respect to each Financed Vehicle on the Closing Date has been
created in favor of the Seller, and the Seller will be required to repurchase
the related Receivable in the event of an uncured breach of such warranty in
accordance with the related Pooling and Servicing Agreement or Sale and
Servicing Agreement.
The Seller will assign its security interest in any related Financed
Vehicles, along with the sale and assignment of the related Receivables to the
Depositor and pursuant to the related Pooling and Servicing Agreement or Sale
and Servicing Agreement, the Depositor will assign its security interests in the
Financed Vehicles, along with the sale and assignment of the Receivables, to the
Trust, and the Servicer will hold the certificates of title relating to the
Financed Vehicles, either directly or through subservicers, as custodian for the
Trust following such sale and assignment. The certificates of title will not be
endorsed or otherwise amended to identify the Trust or the related Trustee or
Indenture Trustee as the new secured party, however, because of the
administrative burden and expense involved in connection therewith.
In most states, an assignment of a security interest in a Financed Vehicle
along with the applicable Receivable is effective without amendment of any lien
noted on a vehicle's certificate of title or ownership, and the assignee
succeeds thereby to the assignor's rights as secured party. In most states, in
the absence of fraud or forgery by the vehicle owner or of fraud, forgery,
negligence or error by the Seller or administrative error by state or local
agencies, the notation of the Seller's lien on the certificates of title or
ownership and/or possession of such certificates with such notation will be
sufficient to protect the Trust against the rights of subsequent purchasers of a
Financed Vehicle or subsequent lenders who take a security interest in a
Financed Vehicle. There exists a risk, however, in not identifying the Trust and
the Indenture Trustee, if applicable, as the new secured party on the
certificate of title, that the security interest of the Trust or the Indenture
Trustee may not be enforceable. In the event the Trust has failed to obtain or
maintain a perfected security interest in a Financed Vehicle, its security
interest would be subordinate to, among
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others, a bankruptcy trustee of the Obligor, a subsequent purchaser of the
Financed Vehicle or a holder of a perfected security interest.
The Seller will warrant in the related Pooling and Servicing Agreement or
Sale and Servicing Agreement as to each Receivable conveyed by it to the
Depositor that, on the Closing Date, the Seller has a valid, subsisting, and
enforceable first priority perfected security interest in the Financed Vehicle
securing the Receivable (subject to administrative delays and clerical errors on
the part of the applicable government agency and to any statutory or other lien
arising by operation of law after the Closing Date which is prior to such
security interest) and such security interest will be assigned to the Depositor
and, by the Depositor to the Trust and the Indenture Trustee, if applicable. In
the event of an uncured breach of such warranty, the Seller will be required to
repurchase such Receivable for its Purchase Amount in accordance with the
related Pooling and Servicing Agreement or Sale and Servicing Agreement. This
repurchase obligation will constitute the sole remedy available to the Trust,
the related Trustee, any Indenture Trustee, the Noteholders and the
Certificateholders in respect of a given Trust for such breach. The Seller's
warranties with respect to perfection and enforceability of a security interest
in a Financed Vehicle will not cover statutory or other liens arising after the
Closing Date by operation of law which have priority over such security
interest. Accordingly, any such lien would not by itself give rise to a
repurchase obligation on the part of the Seller.
In the event that an Obligor moves to a state other than the state in which
the Financed Vehicle is registered, under the laws of most states, a perfected
security interest in a motor vehicle continues for four months after such
relocation and thereafter, in most instances, until the Obligor re-registers the
motor vehicle in the new state, but in any event not beyond the surrender of the
certificate. A majority of states require surrender of a certificate of title to
re-register a motor vehicle and require that notice of such surrender be given
to each secured party noted on the certificate of title. In those states that
require a secured party to take possession of a certificate of title to perfect
a security interest, the secured party would learn of the re-registration
through the request from the Obligor to surrender possession of the certificate
of title. In those states that require a secured party to note its lien on a
certificate of title to perfect a security interest but do not require
possession of the certificate of title, the secured party would learn of the
re-registration through the notice from the applicable state department of motor
vehicles that the certificate of title had been surrendered. The requirements
that a certificate of title be surrendered and that notices of such surrender be
given to each secured party also apply to re-registrations effected following a
sale of a motor vehicle. The Seller would therefore have the opportunity to
re-perfect its security interest in a Financed Vehicle in the state of
re-registration following relocation of the Obligor and would be able to require
satisfaction of the related Receivable following a sale of the Financed Vehicle.
In states that do not require a certificate of title for registration of a motor
vehicle, re-registration could defeat perfection. In the ordinary course of
servicing motor vehicle receivables, the Servicer takes steps to effect
re-perfection upon receipt of notice of re-registration or information from the
Obligor as to relocation. However, there is a risk that an Obligor could
relocate without notification to the Servicer, then file a false affidavit with
the new state to cause a new certificate of title to be issued without notation
of the Seller's lien.
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Under the laws of many states, certain possessory liens for repairs
performed on or storage of a motor vehicle and liens for unpaid taxes as well as
certain rights arising from the use of a motor vehicle in connection with
illegal activities, may take priority over a perfected security interest in the
motor vehicle. The Seller will warrant in the related Pooling and Servicing
Agreement or Sale and Servicing Agreement that, as of the Closing Date, the
Seller has not received notice that any such liens are pending. In the event of
a breach of such warranty which has a material and adverse effect on the
interests of the Trust, the related Trustee, any Indenture Trustee, the
Noteholders and the Certificateholders in respect of a given Trust, the Seller
will be required to repurchase the Receivable secured by the Financed Vehicle
involved. This repurchase obligation will constitute the sole remedy available
to the Trust, the related Trustee, any Indenture Trustee, the Noteholders and
the Certificateholders in respect of a given Trust for such breach. Any liens
for repairs or taxes arising at any time after the Closing Date during the term
of a related Receivable would not give rise to a repurchase obligation on the
part of the Seller.
REPOSSESSION
In the event of a default by an Obligor, the holder of a Receivable has all
the remedies of a secured party under the UCC, except where specifically limited
by other state laws or by contract. The remedies of a secured party under the
UCC include the right to repossession by means of self-help, unless such means
would constitute a breach of the peace. Self-help repossession is the method
employed by the Seller in most cases, and is accomplished simply by taking
possession of the motor vehicle. Generally, where the Obligor objects or raises
a defense to repossession, a court order must be obtained from the appropriate
state court and the motor vehicle must then be repossessed in accordance with
that order. In the event of a default by an Obligor, many jurisdictions require
that, absent a waiver, the Obligor be notified of the default and be given a
time period within which he may cure the default prior to repossession except
such notice need not be given in emergency situations pursuant to an order from
the appropriate state court.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require the secured party to provide an
Obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
Obligor generally has the right to redeem the collateral prior to actual sale by
paying the secured party the unpaid principal balance of the obligation plus, in
most cases, reasonable expenses for repossessing, holding and preparing the
collateral for disposition and arranging for its sale plus, in some
jurisdictions, reasonable attorneys' fees. In some states, the obligor has the
right, prior to actual sale, to reinstatement of the original loan terms and to
return of the collateral by payment of delinquent installments of the unpaid
balance.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of Financed Vehicles generally will be applied first
to the expenses of repossession and resale and then to the satisfaction of the
indebtedness on the related Receivable. While some states impose prohibitions or
limitations on deficiency
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judgments if the net proceeds from resale do not cover the full amount of the
indebtedness, a deficiency judgment can be sought in those states that do not
prohibit or limit such judgments. Any such deficiency judgment would be a
personal judgment against the Obligor for the shortfall, however, a defaulting
Obligor may have very little capital or sources of income available following
repossession. Other statutory provisions, including state and federal bankruptcy
laws, may interfere with a lender's ability to enforce a deficiency judgment or
to collect a debt owed or realize upon collateral. Therefore, in many cases, it
may not be useful to seek a deficiency judgment or, if one is obtained, it may
be settled at a significant discount or not paid at all.
Occasionally, after resale of a repossessed motor vehicle and payment of
all expenses and indebtedness, there is a surplus of funds. In that case, the
UCC requires the secured party to remit the surplus to any other holder of a
lien with respect to the motor vehicle or, if no such lienholder exists or funds
remain after paying such other lienholder, to the Obligor.
CONSUMER PROTECTION LAWS
Numerous Federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. These laws include the Truth In Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B, Z and AA,
and other similar acts and regulations, state adoptions of the Uniform Consumer
Credit Code and other similar laws, and state usury laws. Also, state laws
impose other restrictions on consumer transactions, may require contract
disclosures in addition to those required under Federal law and may limit the
remedies available in the event of default by an Obligor. These requirements
impose specific statutory liabilities upon creditors who fail to comply with
their provisions where applicable. In most cases, this liability could affect
the ability of an assignee, such as the Trust, to enforce secured loans such as
the Receivables.
The FTC's holder-in-due-course rule (the "FTC Rule") has the effect of
subjecting any assignee of the seller of the vehicle to all claims and defenses
which the purchaser could assert against such seller of the vehicle. Liability
under the FTC Rule is limited to the amounts paid by the purchaser under the
contract, and the holder of the contract may also be unable to collect any
balance remaining due thereunder from the purchaser. The FTC Rule may be
duplicated by state statutes or the common law in certain states. Although the
Seller is not a seller of motor vehicles and is not subject to the jurisdiction
of the FTC, the retail installment sale contracts evidencing the Receivables
contain provisions which contractually apply the FTC Rule. Accordingly, the
Seller, the Depositor, and the Trust as holders of the Receivables, may be
subject to claims or defenses, if any, that the purchaser of a Financed Vehicle
may assert against the seller of such vehicle.
Under the motor vehicle dealer licensing laws of most states, sellers of
motor vehicles are required to be licensed to sell such vehicles at retail sale.
In addition, with respect to used motor vehicles, the FTC's Rule on Sale of Used
Vehicles requires that all sellers of
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used motor vehicles prepare, complete and display a "Buyer's Guide" which
explains the warranty coverage for such vehicles. Federal Odometer Regulations
promulgated under the Motor Vehicle Information and Cost Savings Act require
that all sellers of used motor vehicles furnish a written statement signed by
the seller certifying the accuracy of the odometer reading. If a seller is not
properly licensed or if either a Buyer's Guide or Odometer Disclosure Statement
was not properly provided to the purchaser of a Financed Vehicle, such purchaser
may be able to assert a claim against the seller of such vehicle. Although the
Seller is not a seller of motor vehicles and is not subject to these laws, a
violation thereof may form the basis for a claim or defense against the Seller,
the Depositor, the Trust and the Indenture Trustee as holders of the
Receivables.
Courts have applied general equitable principles to secured parties
pursuing repossession or litigation involving deficiency balances. These
equitable principles may have the effect of relieving an Obligor from some or
all of the legal consequences of a default.
The Seller will warrant as to each Receivable conveyed by it to the
Depositor that such Receivable complied at the time it was originated and as of
the Closing Date in all material respects with all requirements of applicable
law. The Depositor will assign the Seller's warranty to the Trust. If, as of the
related Cutoff Date, an Obligor had a claim against the Trust for violation of
any law and such claim materially and adversely affected the Trust's interest in
a Receivable, such violation would create an obligation of the Seller to
repurchase the Receivable unless the breach was cured. This repurchase
obligation will constitute the sole remedy of the Trust, the related Trustee,
any Indenture Trustee, the Noteholders and the Certificateholders in respect of
a given Trust against the Seller in respect of any such uncured breach. See
"Description of the Transfer and Servicing Agreements -- Sale and Assignment of
Receivables."
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including Federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a lender to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the Bankruptcy Code, a court may prevent a lender
from repossessing a motor vehicle and, as part of the rehabilitation plan,
reduce the amount of the secured indebtedness to the market value of such
vehicle at the time of bankruptcy (as determined by the court), leaving the
party providing financing as a general unsecured creditor for the remainder of
the indebtedness. A bankruptcy court may also reduce the monthly payments due
under a contract or change the rate of interest and time of repayment of the
indebtedness. In such a case, the amount collected on the related Receivable and
payable to the Securityholders on account thereof, may be less than the amount
anticipated.
The Depositor intends that the transfer of the Receivables by it to the
Trust under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement constitutes a valid sale and assignment of such Receivables.
Notwithstanding the foregoing, if the Depositor were to become a debtor in a
bankruptcy case and a creditor or trustee-in-
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bankruptcy of the Depositor or the Depositor itself were to take the position
that the sale of the Receivables by the Depositor to the Trust should instead be
treated as a pledge of Receivables to secure a borrowing of the Depositor,
delays in payments or collections of Receivables could occur or (should the
court rule in favor of any such trustee, debtor or creditor) reductions in the
amounts of such payments could result. If the transfer of Receivables by the
Depositor to the Trust is treated as a pledge instead of a sale, a tax or
government lien on the property of the Depositor arising before the transfer of
the Receivables to the Trust may have priority over the Trust's interest in such
Receivables.
FEDERAL INCOME TAX CONSEQUENCES
This section sets forth (1) certain federal income tax opinions of Stroock
& Stroock & Lavan LLP, special counsel to the Depositor ("Federal Tax Counsel"),
and (2) a discussion, based on the advice of Federal Tax Counsel, of the
material federal income tax consequences of the purchase, ownership and
disposition of Securities.
The federal income tax consequences to holders of Securities will vary
depending on whether an election is made to treat the Trust as a partnership or
division of its owner under the Code or whether the Trust will be treated as a
grantor trust. The Prospectus Supplement for each Series of Certificates will
specify whether the Trust is intended to be treated as a partnership or a
division of its owner, or the Trust will be treated as a grantor trust.
OPINIONS
Federal Tax Counsel is of the opinion, as of the date of this Prospectus,
that:
(1) If a Prospectus Supplement indicates that one or more classes of
Notes of the related Series are to be treated as indebtedness for federal
income tax purposes, assuming that all of the provisions of the applicable
Indenture are complied with, the Notes so designated will be considered
indebtedness for federal income tax purposes;
(2) If a Prospectus Supplement indicates that a Trust will be treated
as a grantor trust for federal income tax purposes, assuming compliance
with all of the provisions of the applicable Pooling and Servicing
Agreement, (a) the Trust will be considered to be a grantor trust under
Subpart E, Part 1 of Subchapter J of the Code and will not be considered to
be an association taxable as a corporation and (b) an owner of the related
Certificates (referred to herein as "Grantor Trust Certificates") will be
treated for federal income tax purposes as the owner of an undivided
interest in the Trust's assets;
(3) If a Prospectus Supplement indicates that a Trust is to be treated
as a partnership for federal income tax purposes, assuming that all of the
provisions of the applicable Trust Agreement or Pooling and Servicing
Agreement are complied with, such Trust will not be considered to be an
association or publicly traded partnership taxable as a corporation;
(4) If a Prospectus Supplement indicates that one or more classes of
Certificates of the related Series are to be treated as indebtedness for
federal income tax purposes,
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assuming all of the provisions of the applicable Pooling and Servicing
Agreement are complied with, the Certificates so designated will be
considered indebtedness for federal income tax purposes.
Each such opinion is an expression of an opinion only, is not a guarantee
of results and is not binding on the Internal Revenue Service (the "IRS"), the
courts or any third-party.
DISCUSSION
The discussion does not purport to deal with federal income tax
consequences applicable to individuals holding Securities directly or indirectly
through partnerships, trusts, estates, or corporations or investors holding
Securities as other than a capital asset. Moreover, there are no cases or IRS
rulings on all of the issues discussed below. As a result, the IRS may disagree
with all or a part of the discussion below. The Depositor recommends that
prospective investors consult their own tax advisors in determining the federal,
state, local foreign and any other tax consequences to them of the purchase,
ownership and disposition of the Notes and the Certificates.
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. No ruling on any of the
issues discussed below will be sought from the IRS. For purposes of the
following discussion, references to the Trust, the Notes, the Certificates and
related terms, parties and documents shall be deemed to refer, unless otherwise
specified herein, to each Trust and the Notes, Certificates and related terms,
parties and documents applicable to such Trust.
TRUSTS CHARACTERIZED AS PARTNERSHIPS OR DIVISIONS
TAX CHARACTERIZATION OF THE TRUST
If a Trust is intended to be a partnership for federal income tax purposes,
the applicable Pooling and Servicing Agreement or Trust Agreement will provide
that the nature of the income of the Trust will exempt it from the rule that
certain publicly traded partnerships are taxable as corporations or the issuance
of the Securities will be structured as a private placement under an IRS safe
harbor, so that the Trust will not be characterized as a publicly traded
partnership taxable as a corporation and that no election will be made to treat
the Trust as a corporation for federal income tax purposes. If the Trust has a
single owner, it will be treated as a division of its owner, and as such will be
disregarded as an entity separate from its owner for federal income tax
purposes, assuming no election will be made to treat the Trust as a corporation
for federal income tax purposes.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Depositor will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. The discussion below assumes this
characterization of the Notes is
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correct, that all payments on the Notes are denominated in U.S. dollars, and
that the Notes are not Indexed Securities or Strip Notes.
Moreover, the discussion assumes that the interest formula for the Notes
meets the requirements for "qualified stated interest" under Treasury
regulations (the "OID Regulations") relating to "original issue discount" within
the meaning of Section 1273 of the Code ("OID"), and that any OID on the Notes
(i.e., any excess of the principal amount of the Notes over their issue price)
does not exceed a de minimis amount (i.e., 3% of their principal amount
multiplied by the number of full years included in their term), all within the
meaning of the OID regulations. If these conditions are not satisfied with
respect to any given Series of Notes, additional tax considerations with respect
to such Notes will be disclosed in the applicable Prospectus Supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note. It is believed,
but Federal Tax Counsel is unable to opine, that any prepayment premium paid as
a result of a mandatory redemption will be taxable as contingent interest when
it becomes fixed and unconditionally payable. A purchaser who buys a Note for
more or less than its principal amount will generally be subject, respectively,
to the premium amortization or market discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one year
from the issue date of such Note (a "Short-Term Note") may be subject to special
rules. An accrual basis holder of a Short-Term Note (and certain cash method
holders, including regulated investment companies, as set forth in Section 1281
of the Code) generally would be required to report interest income as interest
accrues on a straight-line basis over the term of each interest period. Other
cash basis holders of a Short-Term Note would, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, acquisition discount, OID,
if any, and gain previously included by such
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Noteholder in income with respect to the Note and decreased by the amount of
bond premium (if any) previously amortized and by the amount of principal
payments previously received by such Noteholder with respect to such Note. Any
such gain or loss will be capital gain or loss if the Note was held as a capital
asset, except for gain representing accrued interest and accrued market discount
not previously included in income. Capital losses generally may be used only to
offset capital gains.
Foreign Holders. Interest payments made (or accrued) to a Noteholder who
is a foreign corporation or other non-United States person (a "foreign person")
generally will be considered "portfolio interest", and generally will not be
subject to United States federal income tax and withholding tax, if the interest
is not effectively connected with the conduct of a trade or business within the
United States by the foreign person and the foreign person (x) is not actually
or constructively a "10 percent shareholder" of the Trust or the Depositor
(including a holder of 10% of the outstanding Certificates) or a "controlled
foreign corporation" with respect to which the Trust or the Depositor is a
"related person" within the meaning of the Code and (y) provides the Applicable
Trustee or other person who is otherwise required to withhold U.S. tax with
respect to the Notes with an appropriate statement (on Form W-8 or a similar
form), signed under penalties of perjury, certifying that the beneficial owner
of the Note is a foreign person and providing the foreign person's name and
address. If a Note is held through a securities clearing organization or certain
other financial institutions, the organization or institution may provide the
relevant signed statement to the withholding agent; in that case, however, the
signed statement must be accompanied by a Form W-8 or substitute form provided
by the foreign person that owns the Note. If such interest is not portfolio
interest, then it will be subject to United States federal income and
withholding tax at a rate of 30 percent, unless reduced or eliminated pursuant
to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person generally will be exempt from
United States federal income and withholding tax, provided that such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust or individual retirement account will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the opinion
of Federal Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust. If so treated, the Trust might be
taxable as a corporation with the adverse consequences described above (and the
taxable corporation would not be able to reduce its taxable income by deductions
for interest expense on Notes recharacterized as equity).
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Alternatively, the Trust might be treated as a publicly traded partnership that
would not be taxable as a corporation if it met certain qualifying income tests.
Nonetheless, treatment of the Notes as equity interests in such a publicly
traded partnership could have adverse tax consequences to certain holders. For
example, income to certain tax-exempt entities (including pension funds) would
be "unrelated business taxable income," income to foreign holders generally
would be subject to U.S. tax and U.S. tax return filing and withholding
requirements, and individual holders might be subject to certain limitations on
their ability to deduct their share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Trust as a Partnership. The Depositor and the Servicer
will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders, and the
Notes, if any, being debt of the partnership, or if there is a single
Certificateholder, to disregard the Trust as an entity separate from its owner.
However, the proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, if any, the Depositor and the Servicer is not clear
because there is no authority on transactions closely comparable to that
contemplated herein.
For example, because the Certificates have certain features characteristic
of debt, the Certificates might be considered debt of the Depositor or the
Trust. Generally, provided such Certificates are issued at or close to face
value, any characterization would not result in materially adverse tax
consequences to Certificateholders as compared to the consequences from
treatment of the Certificates as equity in a partnership, described below. If
Certificates are issued at a substantial discount, a discussion of the relevant
tax consequences will be set forth in the related Prospectus Supplement. The
following discussion assumes that the Certificates represent equity interests in
a partnership.
The following discussion assumes that all payments on the Certificates are
denominated in U.S. dollars, none of the Certificates are Indexed Securities or
Strip Certificates, and that a Series of Securities includes a single class of
Certificates. If these conditions are not satisfied with respect to any given
Series of Certificates, additional tax considerations with respect to such
Certificates will be disclosed in the applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. In certain instances, however, the
Trust could have an obligation to make payments of withholding tax on behalf of
a Certificateholder. See "Backup Withholding" and "Tax Consequences to Foreign
Certificateholders" below. The Trust's income will consist primarily of interest
and finance charges earned on the Receivables (including appropriate adjustments
for market discount, OID and bond premium) and any gain upon collection or
disposition of Receivables. The Trust's deductions will consist primarily of
interest
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accruing with respect to the Notes, servicing and other fees, and losses or
deductions upon collection or disposition of Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
related documents). The related Trust Agreement or Pooling and Servicing
Agreement will provide, in general, that the Certificateholders will be
allocated taxable income of the Trust for each month equal to the sum of:
(1) the interest that accrues on the Certificates in accordance with
their terms for such month, including interest accruing at the Pass-Through
Rate for such month and interest on amounts previously due on the
Certificates but not yet distributed;
(2) any amount of Trust income that corresponds to any excess of the
principal amount of the Certificates over their initial issue price;
(3) prepayment premium payable to the Certificateholders for such
month; and
(4) any other amounts of income payable to the Certificateholders for
such month. Such allocation will be reduced by any amortization by the
Trust of premium on Receivables that corresponds to any excess of the issue
price of Certificates over their principal amount.
All remaining taxable income of the Trust will be allocated to the related
Company. Based on the economic arrangement of the parties, this approach for
allocating Trust income should be permissible under applicable Treasury
regulations, although Federal Tax Counsel is unable to opine that the IRS would
not require a greater amount of income to be allocated to Certificateholders.
Moreover, even under the foregoing method of allocation, Certificateholders may
be allocated income equal to the entire Pass-Through Rate plus the other items
described above even though the Trust might not have sufficient cash to make
current cash distributions of such amount. Thus, cash basis holders will in
effect be required to report income from the Certificates on the accrual basis
and Certificateholders may become liable for taxes on Trust income even if they
have not received cash from the Trust to pay such taxes. In addition, because
tax allocations and tax reporting will be done on a uniform basis for all
Certificateholders but Certificateholders may be purchasing Certificates at
different times and at different prices, Certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
Substantially all of the taxable income allocated to a Certificateholder
that is a pension, profit sharing or employee benefit plan or other tax-exempt
entity (including an individual retirement account) will constitute "unrelated
business taxable income" generally taxable to such a holder under the Code.
Except as provided in the following paragraph the Trust intends to make all
tax calculations relating to income and allocations to Certificateholders on an
aggregate basis. If the IRS were to require that such calculations be made
separately for each Receivable, the Trust might be required to incur additional
expense but it is believed that there would not be a material adverse effect on
Certificateholders.
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Discount and Premium. It is believed that the Receivables will not be
issued with OID, and, therefore, the Trust should not have OID income. However,
the purchase price paid by the Trust for the Receivables may be greater or less
than the remaining principal balance of the Receivables at the time of purchase.
If so, the Receivables will have been acquired at a premium or discount, as the
case may be. (As indicated above, the Trust will make this calculation on an
aggregate basis, but might be required to recompute it on a
Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Receivables or to offset any such premium against interest
income on the Receivables. As indicated above, a portion of such market discount
income or premium deduction will be allocated to Certificateholders if the
related Trust Agreement or Pooling and Servicing Agreement so provides. Any such
allocation will be disclosed in the related Prospectus Supplement.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the partnership will be
considered to have transferred its assets and liabilities to a new partnership
in exchange for interests in that new partnership which it would then be treated
as transferring to its partners. The Trust will not comply with certain
technical requirements that might apply when such a constructive termination
occurs. As a result, the Trust may be subject to certain tax penalties and may
incur additional expenses if it is required to comply with those requirements.
Furthermore, the Trust might not be able to comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
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If a Certificateholder is required to recognize an aggregate amount of
income over the life of the Certificates that exceeds the aggregate cash
distributions with respect thereto, such excess will generally give rise to a
capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The related
Company is authorized to revise the Trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (or loss), the purchasing Certificateholder will have a
higher (or lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of Trust
income and expense to holders and the IRS on Schedule K-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust or be subject to penalties unless the
holder timely notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (1) the name, address
and taxpayer identification number of the nominee and (2) as to each beneficial
owner (x) the name, address and identification number of such person, (y)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly-owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that
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were held, bought or sold on behalf of such person throughout the year. In
addition, brokers and financial institutions that hold Certificates through a
nominee are required to furnish directly to the Trust information as to
themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Servicer or the Applicable Trustee will be designated as the tax
matters partner in the related Trust Agreement or Pooling and Servicing
Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. As discussed below, an
investment in a Certificate is not suitable for any non-U.S. person which is not
eligible for a complete exemption from U.S. withholding tax on interest under a
tax treaty with the United States. Accordingly, no interest in a Certificate
should be acquired by or on behalf of any such non-U.S. person.
No regulations, published rulings or judicial decisions exist that would
discuss the characterization for Federal withholding tax purposes with respect
to non-U.S. persons of a partnership with activities substantially the same as
the Trust. Depending upon the particular terms of the related Trust Agreement
and Sale and Servicing Agreement or Pooling and Servicing Agreement, a trust may
be considered to be engaged in a trade or business in the United States for
purposes of Federal withholding taxes with respect to non-U.S. persons. If the
Trust is considered to be engaged in a trade or business in the United States
for such purposes, the income of the Trust distributable to a non-U.S. person
would be subject to Federal withholding tax at a rate of 35% for persons taxable
as a corporation. Also, in such cases, a non-U.S. Certificateholder that is a
corporation may be subject to the branch profits tax. Subsequent adoption of
Treasury regulations or the issuance of other administrative pronouncements may
require the Trust to change its withholding procedures.
If a Trust is engaged in a trade or business, each foreign
Certificateholder will be required to file a U.S. income tax return (including
in the case of a corporation, the branch profits tax) on its share of the
Trust's income. A foreign holder generally would be entitled to file with the
IRS a claim for refund with respect to withheld taxes, taking the position that
no taxes were due because the Trust was not engaged in a U.S. trade or business.
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However, interest payments made to (or accrued by) a Certificateholder who is a
foreign person may be considered guaranteed payments to the extent such payments
are determined without regard to the income of the Trust and for that reason or
because of the nature of the Receivables, the interest will likely not be
considered "portfolio interest." See "-- Tax Consequences with respect to
Holders of the Notes -- Foreign Holders." As a result, even if the Trust is not
considered to be engaged in a U.S. trade or business, Certificateholders would
be subject to United States Federal income tax which must be withheld at a rate
of 30% on their share of the Trust's income (without reduction for interest
expense), unless reduced or eliminated pursuant to an applicable income tax
treaty. If the Trust is notified that a Certificateholder is a foreign person,
the Trust may be required to withhold and pay over such tax, which can exceed
the amounts otherwise available for distribution to such a Certificateholder. A
foreign holder would generally be entitled to file with the IRS a refund claim
for such withheld taxes, taking the position that the interest was portfolio
interest and therefore not subject to U.S. tax. However, the IRS may disagree
and no assurance can be given as to the appropriate amount of tax liability. As
a result, each potential foreign Certificateholder should consult its tax
advisor as to whether the tax consequences of holding an interest in a
Certificate make it an unsuitable investment.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
TRUSTS TREATED AS GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST
Characterization. Each Grantor Trust Certificateholder will be treated as
the owner of a pro rata undivided interest in the interest and principal
portions of the Trust represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided interest in each of the
Receivables in the Trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Receivable because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Receivables in the Trust represented by Grantor Trust Certificates,
including interest, OID, if any, prepayment fees, assumption fees, any gain
recognized upon an assumption and late payment charges received by the Servicer.
Under Sections 162 or 212 each Grantor Trust Certificateholder will be entitled
to deduct its pro rata share of servicing fees, prepayment fees, assumption
fees, any loss recognized upon an assumption and late payment charges retained
by the Servicer, provided that such amounts are reasonable compensation for
services rendered to the Trust. Grantor Trust Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses only to the extent such expenses plus all other Section 212
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expenses exceed two percent of its adjusted gross income. For taxable years
beginning after December 31, 1997, in the case of a partnership that has 100 or
more partners and elects to be treated as an "electing large partnership," 70
percent of such partnership's miscellaneous itemized deductions will be
disallowed, although the remaining deductions will generally be allowed at the
partnership level and will not be subject to the 2 percent floor that would
otherwise be applicable to individual partners.
A Grantor Trust Certificateholder using the cash method of accounting must
take into account its pro rata share of income and deductions as and when
collected by or paid to the Servicer. A Grantor Trust Certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid to the Servicer, whichever is
earlier. If the servicing fees or other amounts paid to the Servicer exceed
reasonable servicing compensation, the amount of such excess would be considered
as an ownership interest retained by the Servicer (or any person to whom the
Servicer assigned all or a portion of the servicing fees) in a portion of the
interest payments on the Receivables. The Receivables would then be subject to
the stripped bond rules of the Code discussed below.
The first two subsections below describe certain federal income tax
consequences dependent on whether or not the stripped bond rules apply and the
third subsection below describes certain federal income tax consequence which
are not dependent on the applicability of the stripped rules.
TAXATION OF HOLDERS IF STRIPPED BOND RULES APPLY
In the absence of comprehensive regulations, Federal Tax Counsel is unable
to opine as to the tax treatment of stripped bonds. The preamble to certain
stripped bond regulations suggests that each purchaser of a Grantor Trust
Certificate will be treated with respect to each Receivable as the purchaser of
a single stripped bond consisting of all of the stripped portions of the
applicable Receivable (such portions with respect to a Receivable are referred
to herein as a "Stripped Bond") which generally should be treated as a single
debt instrument issued on the day it is purchased for purposes of calculating
any original issue discount. Generally, under Treasury regulations relating to
Stripped Bonds (the "Section 1286 Treasury Regulations"), if the discount on a
Stripped Bond is larger than a de minimis amount (as calculated for purposes of
the OID rules of the Code) such Stripped Bond will be considered to have been
issued with OID. See "-- Original Issue Discount" herein. Based on the preamble
to the Section 1286 Treasury Regulations, Federal Tax Counsel is of the opinion
that, although the matter is not entirely clear, the interest income on the
Certificates at the sum of the Pass-Through Rate and the portion of the
Servicing Fee Rate that does not constitute excess servicing will be treated as
"qualified stated interest" within the meaning of the Section 1286 Treasury
Regulations and such income will be so treated in the Trustee's tax information
reporting.
Original Issue Discount. When Stripped Bonds have more than a de minimis
amount of OID, the special rules of the Code relating to "original issue
discount" (currently Sections 1271 through 1275) will be applicable to a Grantor
Trust Certificateholder's interest in those Stripped Bonds. Generally, a Grantor
Trust Certificateholder that acquires
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an interest in a Stripped Bond issued or acquired with OID must include in gross
income the sum of the "daily portions," as defined below, of the OID on such
Stripped Bond for each day on which it owns a Certificate, including the date of
purchase but excluding the date of disposition. The daily portions of OID with
respect to a Stripped Bond generally would be determined as follows. A
calculation will be made of the portion of OID that accrues on the Stripped Bond
during each successive monthly accrual period (or shorter period in respect of
the date of original issue or the final Distribution Date). This will be done,
in the case of each full monthly accrual period, by adding (i) the present value
of all remaining payments to be received on the Stripped Bond under the
prepayment assumption, if any, used in respect of the Stripped Bonds and (ii)
any payments received during such accrual period, and subtracting from that
total the "adjusted issue price" of the Stripped Bond at the beginning of such
accrual period. No representation is made that the Stripped Bonds will prepay at
any prepayment assumption. The "adjusted issue price" of a Stripped Bond at the
beginning of the first accrual period is its issue price (as determined for
purposes of the OID rules of the Code) and the "adjusted issue price" of a
Stripped Bond at the beginning of a subsequent accrual period is the "adjusted
issue price" at the beginning of the immediately preceding accrual period plus
the amount of OID allocable to that accrual period and reduced by the amount of
any payment (other than "qualified stated interest") made at the end of or
during that accrual period. The OID accruing during such accrual period will
then be divided by the number of days in the period to determine the daily
portion of OID for each day in the period. With respect to an initial accrual
period shorter than a full monthly accrual period, the daily portions of OID
must be determined according to an appropriate allocation under either an exact
or approximate method set forth in the OID Regulations, or some other reasonable
method, provided that such method is consistent with the method used to
determine the yield to maturity of the Receivables.
With respect to the Stripped Bonds, the method of calculating OID as
described above will cause the accrual of OID to either increase or decrease
(but never below zero) in any given accrual period to reflect the fact that
prepayments are occurring at a faster or slower rate than the prepayment
assumption used in respect of the Stripped Bonds.
TAXATION OF HOLDERS IF STRIPPED BOND RULES DO NOT APPLY
Premium. The price paid for a Grantor Trust Certificate by a holder will
be allocated to such holder's undivided interest in each Receivable based on
each Receivables relative fair market value, so that such holder's undivided
interest in each Receivable will have its own tax basis. A Grantor Trust
Certificateholder that acquires an interest in Receivables at a premium may
elect to amortize such premium under a constant interest method. Amortizable
bond premium will be treated as an offset to interest income on such Grantor
Trust Certificate. The basis for such Grantor Trust Certificate will be reduced
to the extent that amortizable premium is applied to offset interest payments.
There is no law as to whether a reasonable prepayment assumption should be used
in computing amortization of premium allowable under Section 171. A Grantor
Trust Certificateholder that makes this election for Receivables that are
construed to be acquired at a premium will be deemed to have made an election to
amortize bond premium with respect to all debt instruments
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having amortizable bond premium that such Grantor Trust Certificateholder
acquires during the year of the election or thereafter.
If a premium is not subject to amortization using a reasonable prepayment
assumption or it prepays faster than the prepayment assumption, the holder of a
Grantor Trust Certificate acquired at a premium should recognize a loss if a
Receivable prepays in full, equal to the difference between the portion of the
prepaid principal amount of such Receivable that is allocable to the Grantor
Trust Certificate and the portion of the adjusted basis of the Grantor Trust
Certificate that is allocable to such Receivable.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Receivables may be subject to the market discount rules of
Sections 1276 through 1278 to the extent an undivided interest in a Receivable
is considered to have been purchased at a "market discount." Generally, the
amount of market discount is equal to the excess of the portion of the principal
amount of such Receivable allocable to such holder's undivided interest over
such holder's tax basis in such interest. Market discount with respect to a
Receivable will be considered to be zero if the amount allocable to the
Receivable is less than 0.25% of the Receivable's stated redemption price at
maturity multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond shall be
treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of such payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent principal
payments or dispositions of the market discount bond is to be reduced by the
amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. Because the
regulations described above have not been issued, Federal Tax Counsel is unable
to opine as to what effect those regulations might have on the tax treatment of
a Grantor Trust Certificate purchased at a discount or premium.
A holder who acquired a Grantor Trust Certificate at a market discount also
may be required to defer a portion of its interest deductions for the taxable
year attributable to any indebtedness incurred or continued to purchase or carry
such Grantor Trust Certificate purchased with market discount. For these
purposes, the de minimis rule referred above applies. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in which
such market discount is includible in income. If such holder elects to include
market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
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Election to Treat All Interest as OID. The OID regulations permit a
Grantor Trust Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were to be
made with respect to a Grantor Trust Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Grantor Trust Certificateholder acquires during the
year of the election or thereafter. Similarly, a Grantor Trust Certificateholder
that makes this election for a Grantor Trust Certificate that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Grantor Trust Certificateholder owns or acquires. See "-- Premium" herein. The
election to accrue interest, discount and premium on a constant yield method
with respect to a Grantor Trust Certificate is irrevocable.
TAXATION OF HOLDERS REGARDLESS OF WHETHER STRIPPED BOND RULES APPLY
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by the OID included in the seller's gross income with respect to the
Grantor Trust Certificate, and reduced by principal payments on the Grantor
Trust Certificate previously received by the seller. Such gain or loss generally
will be capital gain or loss to an owner for which a Grantor Trust Certificate
is a "capital asset" within the meaning of Section 1221, and will be long-term
or short-term depending on whether the Grantor Trust Certificate has been owned
for the long-term capital gain holding period (currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1), so that gain or loss recognized from the sale of a
Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
Non-U.S. Persons. To the extent that a Grantor Trust Certificate evidences
ownership in underlying Receivables that were issued on or before July 18, 1984,
interest or OID paid by the person required to withhold tax under Section 1441
or 1442 to (1) an owner that is not a U.S. Person (as defined below) or (2) a
Grantor Trust Certificateholder holding on behalf of an owner that is not a U.S.
Person will be subject to federal income tax, collected by withholding, at a
rate of 30% or such lower rate as may be provided for interest by an applicable
tax treaty. Accrued OID recognized by the owner on the sale or exchange of such
a Grantor Trust Certificate also will be subject to federal income tax at the
same rate. Generally, such payments would not be subject to withholding to the
extent that a Grantor Trust Certificate evidences ownership in Receivables
issued after July 18, 1984, by natural persons if such Grantor Trust
Certificateholder complies with certain identification requirements (including
delivery of a statement, signed by the Grantor Trust Certificateholder under
penalties of perjury, certifying that such Grantor Trust Certificateholder is
the beneficial owner, is not a U.S. Person and providing the name and address of
such Grantor
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Trust Certificateholder). Additional restrictions apply to Receivables where the
Obligor is not a natural person in order to qualify for the exemption from
withholding.
As used herein, a "U.S. Person" means a citizen or resident of the United
States, a corporation or a partnership organized in or under the laws of the
United States or any political subdivision thereof (unless, in the case of a
partnership, future Treasury regulations provide otherwise), an estate, the
income of which from sources outside the United States is includible in gross
income for federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States, or a trust other than a
"foreign trust," as defined in Section 7701(a)(3) of the Code.
Information Reporting and Backup Withholding. The Servicer will furnish or
make available, within a reasonable time after the end of each calendar year, to
each person who was a Grantor Trust Certificateholder at any time during such
year, such information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make such information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's federal income tax liability.
CERTAIN CERTIFICATES TREATED AS INDEBTEDNESS
Upon the issuance of Certificates that are intended to be treated as
indebtedness for federal income tax purposes, Federal Tax Counsel will opine
that, based upon its analysis of the factors discussed below and certain
assumptions and qualifications, the Certificates will be treated as indebtedness
for federal income tax purposes. However, opinions of counsel are not binding on
the IRS and there can be no assurance that the IRS could not successfully
challenge this conclusion. Such Certificates that are intended to be treated as
indebtedness are herein referred to as "Debt Certificates" and holders of such
Certificates are herein referred to as "Debt Certificateholders."
The Seller will express in the Trust Documents its intent that for federal,
state and local income and franchise tax purposes, the Debt Certificates will be
indebtedness secured by the Receivables. The Seller agrees and each Debt
Certificateholder, by acquiring an interest in a Debt Certificate, agrees or
will be deemed to agree to treat the Debt Certificates as indebtedness for
federal, state and local income or franchise tax purposes. However, because
different criteria are used to determine the non-tax accounting characterization
of the transactions contemplated by the Trust Documents, the Seller expects to
treat such transactions, for regulatory and financial accounting purposes, as a
sale of ownership interests in the Receivables and not as debt obligations.
In general, whether for federal income tax purposes, a transaction
constitutes a sale of property or a loan the repayment of which is secured by
the property, is a question of fact,
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the resolution of which is based upon the economic substance of the transaction.
The form of a transaction, while a relevant factor, is not conclusive evidence
of its economic substance. In appropriate circumstances, the courts have allowed
taxpayers, as well as the IRS to treat a transaction in accordance with its
economic substance, as determined under federal income tax laws, notwithstanding
that the participants characterize the transaction differently for non-tax
purposes. In some instances, however, courts have held that a taxpayer is bound
by a particular form it has chosen for a transaction, even if the substance of
the transaction does not accord with its form. It is expected that Federal Tax
Counsel will advise that the rationale of those cases will not apply to the
transactions evidenced by a series of Debt Certificates.
While the IRS and the courts have set forth several factors to be taken
into account in determining whether the substance of a transaction is a sale of
property or a secured indebtedness for federal income tax purposes, the primary
factor in making this determination is whether the transferee has assumed the
risk of loss or other economic burdens relating to the property and has obtained
the economic benefits of ownership thereof. Federal Tax Counsel will analyze and
rely on several factors in reaching its opinion that the weight of the benefits
and burdens of ownership of the Receivables has not been transferred to the Debt
Certificateholders and that the Debt Certificates are properly characterized as
indebtedness for federal income tax purposes. Contrary characterizations that
could be asserted by the IRS are described below under "-- Possible
Characterization of the Transaction as a Partnership or as an Association
Taxable as a Corporation."
TAXATION OF INCOME OF DEBT CERTIFICATEHOLDERS
As set forth above, it is expected that Federal Tax Counsel will advise the
Depositor that the Debt Certificates will constitute indebtedness for federal
income tax purposes, and accordingly, holders of Debt Certificates generally
will be taxed in the manner described above in "Trusts Treated as
Partnerships -- Tax Consequences to Holders of Notes Issued By a Partnership."
If the Debt Certificates are issued with OID that is more than a de minimis
amount as defined in the Code and Treasury regulations (see "Trusts Treated as
Partnerships -- Tax Consequences to Holders of Notes Issued By a Partnership"),
a United States holder of a Debt Certificate (including a cash basis holder)
generally would be required to accrue the OID on its interest in a Certificate
in income for federal income tax purposes on a constant yield basis, resulting
in the inclusion of OID in income in advance of the receipt of cash attributable
to that income. Under section 1272(a)(6) of the Code, special provisions apply
to debt instruments on which payments may be accelerated due to prepayments of
other obligations securing those debt instruments. However, no regulations have
been issued interpreting those provisions, and the manner in which those
provisions would apply to the Debt Certificates is unclear. Additionally, the
IRS could take the position based on Treasury regulations that none of the
interest payable on a Debt Certificate is "unconditionally payable" and hence
that all of such interest should be included in the Debt Certificate's stated
redemption price at maturity. Accordingly, Federal Tax Counsel is unable to
opine as to whether interest payable on a Debt Certificates constitutes
"qualified stated interest" that is not included in a Certificate's stated
redemption price at maturity.
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Consequently, prospective investors in Debt Certificates should consult their
own tax advisors concerning the impact to them in their particular
circumstances. The Prospectus Supplement will indicate whether the Trust intends
to treat the interest on the Certificates as "qualified stated interest."
TAX CHARACTERIZATION OF TRUST
Consistent with the treatment of the Debt Certificates as indebtedness, the
Trust will be treated as a security device to hold Receivables securing the
repayment of the Debt Certificates. In connection with the issuance of Debt
Certificates of any series, Federal Tax Counsel will render an opinion that,
based on the assumptions and qualifications set forth therein, under
then-current law, the issuance of the Debt Certificates of such series will not
cause the applicable Trust to be characterized for federal income tax purposes
as an association (or publicly traded partnership) taxable as a corporation.
POSSIBLE CLASSIFICATION OF THE TRANSACTION AS A PARTNERSHIP OR AS AN ASSOCIATION
TAXABLE AS A CORPORATION
The opinion of Federal Tax Counsel with respect to Debt Certificates will
not be binding on the courts or the IRS. It is possible that the IRS could
assert that, for federal income tax purposes, the transactions contemplated
constitute a sale of the Receivables (or an interest therein) to the Debt
Certificateholders and that the proper classification of the legal relationship
between the Depositor and some or all of the Debt Certificateholders resulting
from the transactions is that of a partnership (including a publicly traded
partnership), a publicly traded partnership taxable as a corporation, or an
association taxable as a corporation. The Depositor currently does not intend to
comply with the federal income tax reporting requirements that would apply if
any Classes of Debt Certificates were treated as interests in a partnership or
corporation.
If a transaction were treated as creating a partnership between the
Depositor and the Debt Certificateholders, the partnership itself would not be
subject to federal income tax (unless it were characterized as a publicly traded
partnership taxable as a corporation); rather, the partners of such partnership,
including the Debt Certificateholders, would be taxed individually on their
respective distributive shares of the partnership's income, gain, loss,
deductions and credits. The amount and timing of items of income and deductions
of a Debt Certificate could differ if the Debt Certificates were held to
constitute partnership interests, rather than indebtedness. Moreover, unless the
partnership were treated as engaged in a trade or business, an individual's
share of expenses of the partnership would be miscellaneous itemized deductions
that, in the aggregate, are allowed as deductions only to the extent they exceed
two percent of the individual's adjusted gross income, and would be subject to
reduction under Section 68 of the Code if the individual's adjusted gross income
exceeded certain limits. As a result, the individual might be taxed on a greater
amount of income than the stated rate on the Debt Certificates. Finally, all or
a portion of any taxable income allocated to a Debt Certificateholder that is a
pension, profit-sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) may, under certain circumstances,
constitute "unrelated business taxable income" which generally would be taxable
to the holder under the Code.
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If it were determined that a transaction created an entity classified as an
association or as a publicly traded partnership taxable as a corporation, the
Trust would be subject to federal income tax at corporate income tax rates on
the income it derives from the Receivables, which would reduce the amounts
available for distribution to the Debt Certificateholders. Such classification
may also have adverse state and local tax consequences that would reduce amounts
available for distribution to Debt Certificateholders. Moreover, distributions
on Debt Certificates that are recharacterized as equity in an entity taxable as
a corporation would not be deductible in computing the entity's taxable income,
and cash distributions on such Debt Certificates generally would be treated as
dividends for tax purposes to the extent of such deemed corporation's earnings
and profits.
FOREIGN INVESTORS
If the IRS were to contend successfully that the Debt Certificates are
interest in a partnership and if such partnership were considered to be engaged
in a trade or business in the United States, the partnership would be subject to
a withholding tax on income of the Trust that is allocable to a foreign investor
and such foreign investor would be credited for his or her share of the
withholding tax paid by the partnership. In such case, the holder generally
would be subject to United States federal income tax at regular income tax
rates, and possibly a branch profits tax in the case of a corporate holder.
Alternatively, although there may be arguments to the contrary, if such
partnership is not considered to be engaged in a trade or business within the
United States and if income with respect to the Debt Certificates is not
otherwise effectively connected with the conduct of a trade or business in the
United States by the foreign investor, the foreign investor would be subject to
United States income tax and withholding at a rate of 30% (unless reduced by an
applicable tax treaty) on the holder's distributive share of the partnership's
interest income. See "Trusts Characterized as Partnerships or Divisions -- Tax
Consequences to Holders of the Certificates -- Tax Consequences to Foreign
Certificateholders" for a more detailed discussion of the consequences of an
equity investment by a foreign investor in an entity characterized as a
partnership.
If the Trust were taxable as a corporation, distribution to foreign
investors, to the extent treated as dividends, would generally be subject to
withholding at the rate of 30% unless such rate were reduced or eliminated by an
applicable income tax treaty.
FASIT LEGISLATION
In August, 1996, the United States Congress passed and President Clinton
signed into law the "Small Business Job Protection Act of 1996," H.R. 3448 (the
"Act"). The Act creates a new type of entity for federal income tax purposes
called a "financial asset securitization investment trust" or "FASIT." The
effective date of the FASIT provisions of the Act is September 1, 1997. The Act
enables certain arrangements similar to a Trust to elect to be treated as a
FASIT. Under the FASIT provisions of the Act a FASIT generally would avoid
federal income taxation and could issue securities substantially similar to the
Certificates and Notes, and those securities would be treated as debt for
federal income tax purposes. If so specified in the related Prospectus
Supplement, a Trust may make an
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election to be treated as a FASIT. The applicable Transfer and Servicing
Agreement for such a Trust may contain any such terms and provide for the
issuance of Notes or Certificates on such terms and conditions as are permitted
to a FASIT and described in the related Prospectus Supplement. In addition, upon
satisfying certain conditions set forth in the Transfer and Servicing
Agreements, the Depositor, the Seller and Servicer will be permitted to amend
the Transfer and Servicing Agreements in order to enable all or a portion of a
Trust to qualify as a FASIT and to permit a FASIT election to be made with
respect thereto, and to make such modifications to a "Description of the
Transfer and Servicing Agreements -- Amendment." However, there can be no
assurance that the Depositor will or will not cause any permissible FASIT
election to be made with respect to a Trust or amend a Transfer and Servicing
Agreement in connection with any election. In addition, if such an election is
made, it may cause a holder to recognize gain (but not loss) with respect to any
Notes or Certificates held by it, even though Federal Tax Counsel will deliver
its opinion that a Note will be treated as debt for federal income tax purposes
without regard to the election and the Note or Certificate would be treated as
debt following the election. Additionally, any such election and any related
amendments to a Transfer and Servicing Agreement may have other tax and non-tax
consequences to Securityholders. Accordingly, prospective Securityholders are
encouraged to consult their tax advisors with regard to the effects of any such
election and any permitted related amendments on them in their particular
circumstances.
STATE AND LOCAL TAX CONSEQUENCES
The discussion above does not address the tax consequences of purchase,
ownership or disposition of the Securities under any state or local tax law. We
recommend that investors consult their own tax advisors regarding state and
local tax consequences.
ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), should consider
the fiduciary standards under ERISA in the context of the plan's particular
circumstances before authorizing an investment of a portion of such plan's
assets in the Securities. Accordingly, among other factors, such fiduciary
should consider:
(1) whether the investment is for the exclusive benefit of plan
participants and their beneficiaries;
(2) whether the investment satisfies the diversification requirements
of Section 404 of ERISA;
(3) whether the investment is in accordance with the documents and
instruments governing the plan; and
(4) whether the investment is prudent, considering the nature of the
investment. Fiduciaries of such plans also should consider ERISA's
prohibition on improper delegation of control over, or responsibility for,
plan assets.
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In addition, fiduciaries of employee benefit plans subject to Title I of
ERISA, as well as certain plans or other retirement arrangements not subject to
ERISA, but which are subject to Section 4975 of the Code (such as individual
retirement accounts and Keogh plans covering only a sole proprietor or
partners), or any entity (including an insurance company general account) whose
underlying assets include plan assets by reason of a plan or account investing
in such entity (collectively, "Plans(s)") are prohibited from engaging in a
broad range of transactions involving Plan assets and persons having certain
specified relationships to a Plan ("parties in interest" and "disqualified
persons"). Such transactions are treated as "prohibited transactions" under
Sections 406 and 407 of ERISA and excise taxes are imposed upon such persons by
Section 4975 of the Code. The Depositor, the related Trustee, the related
Indenture Trustee and any underwriter of the offered Securities and certain of
their affiliates might be considered "parties in interest" or "disqualified
persons" with respect to a Plan. If so, the acquisition, holding or transfer of
Securities by, or on behalf of, such Plan could be considered to give rise to a
"prohibited transaction" within the meaning of ERISA and the Code unless a
regulatory exception or administrative exemption is available. In addition, the
Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section
2510.3-101) (the "Plan Assets Regulation") concerning the definition of what
constitutes the assets of a Plan, which provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an "equity" investment will be
deemed for purposes of ERISA to be assets of the investing Plan unless certain
exceptions apply. If an investing Plan's assets were deemed to include an
interest in the Trust Property and not merely an interest in the Securities,
transactions occurring in connection with the servicing, management and
operation of the Trust between the Depositor, the related Trustee, the related
Indenture Trustee, the Servicer (or any other servicer), any insurer or any of
their respective affiliates might constitute prohibited transactions, and the
Trust Property would become subject to the fiduciary investment standards of
ERISA, unless a regulatory exception or administrative exemption applies.
With respect to offered Securities which are Certificates, the DOL has
issued to a number of underwriters of pass-through certificates, similar to the
Certificates, administrative exemptions (collectively, the "Exemption"), which
generally exempt from the application of the prohibited transaction provisions
of Section 406(a), Section 406(b)(1) and Section 406(b)(2) of ERISA, and the
excise taxes imposed pursuant to Section 4975(a) and (b) of the Code, the
initial purchase, holding and subsequent resale of mortgage-backed or
asset-backed pass-through certificates representing a beneficial undivided
interest in certain fixed pools of assets held in a trust (as defined in
paragraph III. B of Section III of the Exemption), along with certain
transactions relating to the servicing and operation of such asset pools,
provided that certain conditions set forth in the Exemption are satisfied.
Paragraph III. B of Section III of the Exemption provides in part that a trust
means an investment pool the corpus of which is held in trust and consists
solely of:
(1) secured consumer receivables;
(2) secured credit instruments;
(3) obligations secured by residential or commercial real property;
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(4) obligations secured by motor vehicles or equipment or qualified
motor vehicle leases;
(5) guaranteed governmental mortgage pool certificates; or
(6) an undivided fractional interest in any of the obligations listed
in clauses (1)-(5) above.
If the general conditions of Section II of the Exemption are satisfied, the
Exemption may provide an exemption from the restrictions imposed by Sections
406(a) and 407(a) of ERISA (as well as the excise taxes imposed by Section
4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of
the Code) in connection with the direct or indirect sale, exchange or transfer
of Certificates by Plans in the initial issue of Certificates, the holding of
Certificates by Plans or the direct or indirect acquisition or disposition in
the secondary market of Certificates by Plans. However, no exemption is provided
from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for
the acquisition or holding of a Certificate on behalf of an "Excluded Plan" by
any person who has discretionary authority or renders investment advice with
respect to the assets of such Excluded Plan. For purposes of the Certificates,
an Excluded Plan is a Plan sponsored by:
(1) an underwriter which has been granted an Exemption (or certain
specified entities affiliated or associated with such underwriter)
("Underwriter");
(2) the Depositor;
(3) the Servicer (or any other servicer);
(4) the related Trustee or the related Indenture Trustee;
(5) any obligor with respect to Receivables constituting more than 5
percent of the aggregate unamortized principal balance of the Receivables
as of the date of initial issuance;
(6) any insurer; and
(7) any affiliate or successor of a person described in (1) to (6)
above (the "Restricted Group").
If the specific conditions of paragraph I.B of Section I of the Exemption
are also satisfied, the Exemption may provide an exemption from the restrictions
imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c)(I)(E) of the
Code in connection with (1) the direct or indirect sale, exchange or transfer of
Certificates in the initial issuance of Certificates between the Depositor or
Underwriter and a Plan when the person who has discretionary authority or
renders investment advice with respect to the investment of Plan assets in
Certificates is (a) an obligor with respect to 5 percent or less of the fair
market value of the Receivables or (b) an affiliate of such a person, (2) the
direct or indirect acquisition or disposition in the secondary market of
Certificates by Plans and (3) the holding of Certificates by Plans.
If the specified conditions of paragraph I.C of Section I of the Exemption
are satisfied, the Exemption may provide an exemption from the restrictions
imposed by Sections 406(a),
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406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a) and (b) of
the Code by reason of Section 4975(c) of the Code for transactions in connection
with the servicing, management and operation of the Trust and the Trust
Property.
The Exemption may provide an exemption from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if such restrictions are deemed to otherwise apply merely because a person is
deemed to be a "party in interest" or a "disqualified person" with respect to an
investing Plan by virtue of providing services to the Plan (or by virtue of
having certain specified relationships to such a person) solely as a result of
such Plan's ownership of Certificates.
The Exemption sets forth the following seven general conditions which must
be satisfied for a transaction to be eligible for exemptive relief thereunder.
(1) The acquisition of the Certificates by a Plan is on terms
(including the price for the Certificates) that are at least as favorable
to the Plan as they would be in an arm's length transaction with an
unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other Securities issued by the Trust;
(3) The Certificates acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from either Standard & Poor's Structured Ratings Group, Moody's
Investors Service, Inc., Duff & Phelps Credit Rating Co. or Fitch IBCA,
Inc. ("National Credit Rating Agencies");
(4) Neither the Trustee or the related Indenture Trustee is an
affiliate of any other member of the Restricted Group (as defined above);
(5) The sum of all payments made to and retained by the Underwriter in
connection with the distribution of Certificates represents not more than
reasonable compensation for underwriting the Certificates. The sum of all
payments made and retained by the Depositor pursuant to the assignment of
the loans to the trust fund represents not more than the fair market value
of such loans. The sum of all payments made to and retained by the Servicer
or any other servicer represents not more than reasonable compensation for
such person's services under the pooling and servicing agreement and
reimbursement of such person's reasonable expenses in connection therewith;
and
(6) The Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D under the Securities Act of
1933. The Depositor assumes that only Plans which are accredited investors
under the federal securities laws will be permitted to purchase the
Certificates.
(7) The trust fund must also meet the following requirements:
(a) the corpus of the trust fund must consist solely of assets of
the type that have been included in other investment pools;
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(b) certificates in such other investment pools must have been
rated in one of the three highest rating categories of one of the
National Credit Rating Agencies for at least one year prior to the
Plan's acquisition of Certificates; and
(c) certificates evidencing interests in such other investment
pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of certificates.
The Exemption may apply to a Plan's purchase, holding and transfer of
Certificates and the operation, management and servicing of the Trust and the
Trust Property as specified in the related Prospectus Supplement. In addition,
in the event the Exemption is not available, certain exemptions from the
prohibited transaction rules may be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a
Certificate. Included among these exemptions are: Prohibited Transaction Class
Exemption ("PTCE") 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 91-38 regarding investments by bank collective
investment funds PTCE 95-60, regarding investments by insurance company general
accounts; PTCE 96-23, regarding transactions affected by in-house asset
managers; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers".
Certain transactions involving the purchase of Securities which are Notes
might be deemed to constitute prohibited transactions under ERISA and the Code
if the Trust Property were deemed to be assets of a Plan. Under the Plan Assets
Regulation, the Trust Property would be treated as plan assets of a Plan for the
purposes of ERISA and the Code only if the Plan acquires an "Equity Interest" in
the Trust and none of the exceptions contained in the Plan Assets Regulation is
applicable. An equity interest is defined under the Plan Assets Regulation as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The Depositor
believes that the Notes should be treated as indebtedness without substantial
equity features for purposes of the Plan Assets Regulation. In addition, even in
the event that the Notes are deemed to be an Equity Interest in the Trust, the
Exemption may be applicable to both a Plan's purchase, holding and transfer of
Notes (which in this situation are considered Certificates for purposes of the
Exemption) and the operation, management and servicing of the Trust and the
Trust Property, if so specified in the related Prospectus Supplement.
Without regard to whether the Notes are characterized as Equity Interests,
the acquisition, transfer or holding of Notes by or on behalf of a Plan could be
considered to give rise to a prohibited transaction if the Trust, the related
Trustee or the related Indenture Trustee or any of their respective affiliates
is or becomes a party in interest or a disqualified person with respect to such
Plan. In such case, PTCE 90-1, PTCE 91-38, PTCE 95-60, PTCE 96-23 and PTCE 84-14
may be applicable depending on the type and circumstances of the plan fiduciary
making the decision to acquire a Note.
Investors that are insurance companies are encouraged to consult with their
legal counsel with respect to the United States Supreme Court case, John Hancock
Mutual Life Insurance Co. v. Harris Trust and Savings Bank, 114 S.Ct. 517
(1993). In Harris Trust, the Supreme Court ruled that assets held in an
insurance company's general account may be
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deemed plan assets under certain circumstances. Accordingly, such insurance
company general accounts would be subject to the same considerations under ERISA
and would be eligible for the same relief under the Exemption that would apply
to any other Plan investor. In the event the Exemption is not applicable to the
purchase, holding and transfer of Securities and the operation, management and
servicing of the Trust and Trust Property, PTCE 95-60 may be applicable
depending on the circumstances.
Any Plan fiduciary considering the purchase of Securities is encouraged to
consult with its counsel with respect to the potential applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code to such investment.
RATINGS
As a condition of issuance, the offered Securities of each Series will be
rated an investment grade, that is, in one of its four highest rating
categories, by at least one nationally recognized rating agency (a "Rating
Agency") as specified in the related Prospectus Supplement. Ratings on the
offered Securities of each Series address the likelihood of receipt by the
related Securityholders of all distributions on the underlying Receivables.
These ratings address the structural, legal and issuer-related aspects
associated with the Securities of such Series, the nature of the underlying
Receivables of such Series, the subordination and any credit enhancement
provided therefor, including the credit quality of the third party credit
enhancement provider, if any. Ratings on offered Securities of each Series do
not represent any assessment of the likelihood of principal prepayments by
Obligors or of the degree by which prepayments might differ from those
originally anticipated. As a result, the related Securityholders might suffer a
lower than anticipated yield, and, in addition, holders of Strip Securities in
extreme cases might fail to recoup their underlying investments. Each security
rating should be evaluated independently of any other security rating. A
security rating is not a recommendation to buy, sell or hold securities. There
is no assurance that the ratings initially assigned to the Securities will not
be subsequently lowered or withdrawn by the Rating Agencies. In the event the
rating initially assigned to any Securities is subsequently lowered for any
reason, no person or entity will be obligated to provide any credit enhancement
unless otherwise specified in the related Prospectus Supplement.
METHOD OF DISTRIBUTION
Notes and/or Certificates are being offered hereby in Series from time to
time through any of the following methods:
1. By negotiated firm commitment underwriting and public reoffering by
underwriters;
2. By agency placements through one or more placement agents primarily
with institutional investors and dealers; and
3. By placement directly by the Depositor with institutional investors.
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A Prospectus Supplement will be prepared for each Series which will
describe the method of offering being used for that Series and will set forth
the identity of any underwriters thereof and either the price at which such
Series is being offered, the nature and amount of any underwriting discounts or
additional compensation to such underwriters and the proceeds of the offering to
the Depositor, or the method by which the price at which the underwriters will
sell the Notes and/or the Certificates will be determined. Each Prospectus
Supplement for an underwritten offering will also contain information regarding
the nature of the underwriters' obligations, any material relationship between
the Depositor and any underwriter and, where appropriate, information regarding
any discounts or concessions to be allowed or reallowed to dealers or others and
any arrangements to stabilize the market for the Notes and/or the Certificates
so offered. In firm commitment underwritten offerings, the underwriters will be
obligated to purchase all of the Notes and/or Certificates of such Series if any
such Notes and/or Certificates are purchased. Notes and/or Certificates may be
acquired by the underwriters for their own accounts and may be resold from time
to time in one or more transactions including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
Mellon Financial Services, Inc., an affiliate of the Depositor, may from
time to time act as agent or underwriter in connection with the sale of the
Notes and/or Certificates. This Prospectus and the related Prospectus Supplement
may be used by Mellon Financial Services, Inc. in connection with offers and
sales related to secondary market transactions in any Series of Notes and/or
Certificates. Mellon Financial Services, Inc. may act as principal or agent in
such transactions. Such sales will be made at prices related to the prevailing
prices at the time of sale.
Underwriters and agents may be entitled under agreements entered into with
the Depositor to indemnification by the Depositor against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribution with respect to payments which such underwriters or agents
may be required to make in respect thereof.
If a Series is offered other than through underwriters, the Prospectus
Supplement relating thereto will contain information regarding the nature of
such offering and any agreements to be entered into between the Depositor and
purchasers of Notes and/or Certificates of such Series.
LEGAL OPINIONS
Unless otherwise specified in the related Prospectus Supplement, certain
legal matters relating to the issuance of the Securities of any Series and the
income tax consequences thereof will be passed upon for the Underwriters and the
Depositor by Stroock & Stroock & Lavan LLP, New York, New York. If so specified
in the related Prospectus Supplement certain legal matters relating to the
issuance of the Securities of a Series under the laws of the State of Delaware
will be passed upon for the Depositor by Richards, Layton & Finger, P.A.,
Wilmington, Delaware.
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INDEX OF PRINCIPAL DEFINED TERMS
<TABLE>
<S> <C>
Act......................................................... 83
Actuarial Receivables....................................... 7
Applicable Trustee.......................................... 36
APR......................................................... 7
Bank........................................................ 9
Base Rate................................................... 29
Calculation Agent........................................... 30
Calculation Date............................................ 30
CD Rate..................................................... 30
CD Rate Determination Date.................................. 30
CD Rate Security............................................ 29
Cede........................................................ 35
Cedel....................................................... 19
Cedel Participants.......................................... 38
Certificate Distribution Account............................ 47
Certificate Majority........................................ 38
Certificate Pool Factor..................................... 17
Closing Date................................................ 43
Code........................................................ 67
Collection Account.......................................... 46
Collection Period........................................... 50
Commercial Paper Rate....................................... 31
Commercial Paper Rate Determination Date.................... 31
Commercial Paper Rate Security.............................. 29
Commission.................................................. 6
Commodity Indexed Securities................................ 34
Composite Quotations........................................ 29
Cooperative................................................. 39
Currency Indexed Securities................................. 34
Cutoff Date................................................. 7
Debt Certificates........................................... 80
Debt Certificateholders..................................... 80
Definitive Certificates..................................... 37
Definitive Notes............................................ 37
Definitive Securities....................................... 40
Depositories................................................ 36
Distribution Date........................................... 28
DOL......................................................... 85
Eligible Deposit Account.................................... 49
Eligible Institution........................................ 49
Eligible Investments........................................ 47
Eligible Trust Company...................................... 49
Equity Interest............................................. 88
ERISA....................................................... 84
Euroclear................................................... 19
Euroclear Operator.......................................... 38
</TABLE>
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<TABLE>
<S> <C>
Euroclear Participants...................................... 38
Events of Default........................................... 21
Exchange Act................................................ 6
Excluded Plan............................................... 86
Exemption................................................... 85
Face Amount................................................. 35
FASIT....................................................... 8
Federal Funds Rate.......................................... 32
Federal Funds Rate Determination Date....................... 32
Federal Funds Rate Security................................. 29
Federal Tax Counsel......................................... 66
Financed Vehicles........................................... 7
Fixed Rate Securities....................................... 28
Floating Rate Securities.................................... 28
Foreign Person.............................................. 69
FTC Rule.................................................... 64
Global Securities........................................... 94
Grantor Trust Certificates.................................. 66
H.15(519)................................................... 29
Index....................................................... 34
Index Maturity.............................................. 29
Indexed Commodity........................................... 34
Indexed Currency............................................ 34
Indexed Principal Amount.................................... 34
Indexed Securities.......................................... 34
Indirect Participants....................................... 36
Initial Pool Balance........................................ 59
Insolvency Event............................................ 56
Interest Reset Date......................................... 29
Interest Reset Period....................................... 29
Investment Earnings......................................... 48
IRS......................................................... 67
LIBOR....................................................... 32
LIBOR Determination Date.................................... 32
LIBOR Security.............................................. 29
London Banking Day.......................................... 32
MDS......................................................... 10
Money Market Yield.......................................... 31
Motor Vehicle Loans......................................... 9
MSRP........................................................ 10
NADA........................................................ 10
National Credit Rating Agencies............................. 87
Note Distribution Account................................... 47
Note Pool Factor............................................ 17
Obligors.................................................... 8
OID......................................................... 68
OID Regulations............................................. 68
</TABLE>
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<TABLE>
<S> <C>
Paid-Ahead Period........................................... 15
Paid-Ahead Receivable....................................... 15
Participants................................................ 19
Payahead Account............................................ 47
Payaheads................................................... 50
Payment Date................................................ 20
Plan........................................................ 85
Plan Assets Regulation...................................... 85
Pool Balance................................................ 17
Prepayment Premium.......................................... 52
PTCE........................................................ 88
Purchase Amount............................................. 46
Rating Agency............................................... 89
Receivable File............................................. 46
Receivables Pool............................................ 7
Registration Statement...................................... 6
Related Documents........................................... 24
Reserve Account............................................. 53
Restricted Group............................................ 86
Reuters Screen LIBO Page.................................... 32
Rules....................................................... 36
Schedule of Receivables..................................... 43
Section 1286 Treasury Regulations........................... 76
Securities Act.............................................. 6
Servicer Default............................................ 56
Servicing Fee............................................... 51
Servicing Fee Rate.......................................... 51
Short-Term Note............................................. 68
Simple Interest Receivables................................. 13
Spread...................................................... 29
Spread Multiplier........................................... 29
Stock Index................................................. 35
Stock Indexed Securities.................................... 35
Stripped Bond............................................... 76
Subsequent Transfer Agreement............................... 45
Subsequent Transfer Assignment.............................. 45
Subsequent Transfer Date.................................... 44
Terms and Conditions........................................ 39
Total Servicing Fee......................................... 51
Transfer and Servicing Agreements........................... 43
Treasury Bills.............................................. 33
Treasury Rate............................................... 33
Treasury Rate Determination Date............................ 34
Treasury Rate Security...................................... 29
Trust Accounts.............................................. 47
U.S. Person................................................. 80
Underwriter................................................. 86
</TABLE>
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, any globally offered series of
Securities (the "Global Securities") will be available only in book-entry form.
Investors in the Global Securities may hold such Global Securities through any
of DTC, Cedel or Euroclear. The Global Securities will be tradable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes and, if the related Prospectus Supplement so
provides, Certificates will be effected on a delivery-against-payment basis
through the respective Depositories of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their Participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede as nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on their behalf as direct and
indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their Participants through their respective Depositories,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices specified by the Underwriters. Investor securities
custody accounts will be credited with their holdings against payment in
same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global securities
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
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SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to insure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC Depositor and Cedel or Euroclear Purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the respective Depository, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date, on the basis of the actual number of days
in such accrual period and year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
respective Depository of the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash debt
will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon to finance the settlement.
Under this procedure, Cedel Participants or Euroclear Participants purchasing
Global Securities would incur overdraft charges for one day, assuming they
cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such
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overdraft charges, although this result will depend on each Cedel Participant's
or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depository for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller on
the settlement date. Thus, to the DTC Participants a cross-market transaction
will settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear Depositor and DTC Purchaser. Due to
time zone differences in their favor, Cedel Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depository, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases Cedel
or Euroclear will instruct the respective Depository, as appropriate, to deliver
the Global Securities to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last interest payment to and excluding the settlement date on the basis of the
actual number of days in such accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
The payment will then be reflected in the account of the Cedel Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
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(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL WITHHOLDING TAXES AND DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities through Cedel or Euroclear (or
through DTC if the holder has an address outside the U.S.) will be subject to
30% U.S. withholding tax that generally applies to payments of interest
(including original issue discount) on registered debt issued by U.S. Persons,
unless (i) each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business in the
chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owners take one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are beneficial owners of Global Securities
residing in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the
Certificateholder or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The holder of a Global
Securities or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate the income
of which is includible in gross
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income for United States tax purposes, regardless of its source or a trust if a
court within the United States is able to exercise primary supervision of the
administration of the trust and one or more United States fiduciaries have the
authority to control all substantial decisions of the trust. This summary of
documentation requirements does not deal with all aspects of U.S. Federal income
tax withholding or that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for specific
tax advice concerning their holding and disposing of the Global Securities.
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MELLON AUTO GRANTOR TRUST 1999-1
$317,258,887.13
$307,741,000.00, 5.46% CLASS A CERTIFICATES
$9,517,887.13, 5.76% CLASS B CERTIFICATES
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PROSPECTUS SUPPLEMENT
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CHASE SECURITIES INC. MELLON FINANCIAL MARKETS, INC.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with different information.
We are not offering the Certificates in any state where the offer is not
permitted.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the Certificates, and with respect to their unsold allotments or
subscriptions. In addition, all dealers selling the Certificates will be
required to deliver a prospectus supplement and prospectus until July 20, 1999.
APRIL 21, 1999
